10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x      Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2012 or

¨      Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                  to                 .

Commission file number: 001-31747

UNIVERSAL SECURITY INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	52-0898545
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

11407 Cronhill Drive, Suite A, Owings Mills, Maryland	21117
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (410) 363-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	New York Stock Exchange (Euronext)

Securities registered pursuant to Section 12(g) of the Act:

None

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of Common Stock, $.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the New York Stock Exchange (NYSE AMEX) on September 30, 2011, was $11,183,350.

The number of shares of common stock outstanding as of June 15, 2012 was 2,336,354.

documents incorporated by reference

To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant’s definitive proxy statement for its 2012 Annual Meeting of Shareholders (to be filed).

UNIVERSAL SECURITY INSTRUMENTS, INC.

2012 ANNUAL REPORT ON FORM 10-K

Table of Contents

		Page
	PART I
Item 1.	Business	3
Item 1B.	Unresolved Staff Comments	5
Item 2.	Properties	5
Item 3.	Legal Proceedings	6
	Executive Officers of the Registrant	6
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	7
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 8.	Financial Statements and Supplementary Data	11
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	12
Item 9A.	Controls and Procedures	12
Item 9B.	Other Information	12
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	13
Item 11.	Executive Compensation	13
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	13
Item 13.	Certain Relationships and Related Transactions, and Director Independence	13
Item 14.	Principal Accountant Fees and Services	13
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	14
Signatures		16

PART I

ITEM 1. BUSINESS

General

Universal Security Instruments, Inc. (“we” or “the Company”) designs and markets a variety of popularly-priced safety products consisting primarily of smoke alarms, carbon monoxide alarms and related products. Most of our products require minimal installation and are designed for easy installation by the consumer without professional assistance, and are sold through retail stores. We also market products to the electrical distribution trade through our wholly-owned subsidiary, USI Electric, Inc. (“USI Electric”). The electrical distribution trade includes electrical and lighting distributors as well as manufactured housing companies. Products sold by USI Electric usually require professional installation.

In 1989 we formed Eyston Company Limited, a limited liability company under the laws of Hong Kong, as a joint venture with a Hong Kong-based partner, to manufacture various products in the Peoples Republic of China (the “Hong Kong Joint Venture”). We currently own a 50% interest in the Hong Kong Joint Venture and are a significant customer of the Hong Kong Joint Venture (45.8% and 28.8% of its sales during fiscal 2012 and 2011 respectively), with the balance of its sales made to unrelated customers worldwide. We import all of our products from foreign suppliers. For the fiscal year ended March 31, 2012, approximately 96.2% of our purchases were imported from the Hong Kong Joint Venture.

Our sales for the year ended March 31, 2012 were $13,304,602 compared to $13,249,604 for the year ended March 31, 2011. We reported a net loss of $503,288 in fiscal 2012 compared to net income of $817,781 in fiscal 2011, a decrease of 161.5%. The primary reasons for the decrease were a $1,190,631 (70.4%) decrease in the earnings of the Joint Venture due to lower sales to non-affiliated customers, higher selling costs incurred to meet delivery commitments to the U.S. customers, and a decrease in investment and interest income due to a decrease in cash invested in short term instruments.

The Company was incorporated in Maryland in 1969. Our principal executive office is located at 11407 Cronhill Drive, Suite A, Owings Mills, Maryland 21117, and our telephone number is 410-363-3000. Information about us may be obtained from our website www.universalsecurity.com. Copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on our website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu item, then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly at www.sec.gov.

Safety Products

We market a line of residential smoke and carbon monoxide alarms under the trade names “UNIVERSAL” and “USI Electric” both of which are manufactured by the Hong Kong Joint Venture.

Our line of smoke alarms consists of battery powered, electrical and electrical with battery backup alarms. Our products contain different types of batteries with different battery lives, and some with alarm silencers. The smoke alarms marketed to the electrical distribution trade also include hearing impaired and heat alarms with a variety of additional features. We also market carbon monoxide alarms, door chimes and ventilation products.

Over the past four fiscal years we developed new smoke, carbon monoxide, and natural gas detection technologies. This effort has resulted in the development of new alarm sensing technology and we have applied for nine patents on these new technologies and features. To date we have been granted five patents, and we are currently awaiting notification from the U.S. Patent Office regarding the remaining patent applications. Our new technologies and features have been trademarked under the trade name IoPhic^®. We also regularly submitted each of our new products for independent testing agency approval, and we introduced products into the marketplace as approvals were received. This process began during the fourth quarter of our 2011 fiscal year and by the end of the third quarter of our 2012 fiscal year we had completed testing and received approvals from independent testing agencies for all of the next generation of products that we had submitted for testing.

The Company is continuing its research and development efforts and expects to submit additional products to independent testing agencies and expects to incur additional engineering, design, and certification costs of between $400,000 and $500,000 during the fiscal year ending March 31, 2013. In addition, the Company has initiated marketing efforts to educate consumers on the significant benefits and features of the IoPhic^® technology and to introduce the new product line to the retail marketplace and expects to incur costs of between $350,000 and $450,000 as a result of this effort.

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Our wholly-owned subsidiary, USI Electric, Inc., focuses its sales and marketing efforts to maximize safety product sales, especially smoke alarms and carbon monoxide alarms manufactured by our Hong Kong Joint Venture, to the electrical distribution trade.

Import Matters

We import all of our products. As an importer, we are subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions, and currency fluctuations. We have attempted to protect ourselves from fluctuations in currency exchange rates to the extent possible by negotiating commitments in U.S. dollars.

Our inventory purchases are also subject to delays in delivery due to problems with shipping and docking facilities, as well as other problems associated with purchasing products abroad. Substantially all of our safety products, including products we purchase from our Hong Kong Joint Venture, are imported from the People’s Republic of China.

Sales and Marketing; Customers

We sell our products to various customers, and our total sales market can be divided generally into two categories; sales by the Company to retailers, including wholesale distributors, chain, discount, television retailers and home center stores, catalog and mail order companies and other distributors (“retailers”), and sales by our USI Electric subsidiary to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies). Products marketed by the Company have historically been retailed to “do-it-yourself” consumers by these retailers. Products marketed by our USI Electric subsidiary to the electrical distribution trade typically require professional installation. We do not currently market a significant portion of our products directly to end users.

A significant portion of our sales are made by approximately 27 independent sales organizations, compensated by commission, which represents approximately 230 sales representatives, some of which have warehouses where USI Electric products are maintained for sale. In addition, the Company has established a national distribution system with 9 regional stocking warehouses throughout the United States which generally enables customers to receive their orders the next day without paying for overnight freight charges. Our agreements with these sales organizations are generally cancelable by either party upon 30 days notice. We do not believe that the loss of any one of these organizations would have a material adverse effect upon our business. Sales are also made directly by the officers and full-time employees of the Company and our USI Electric subsidiary, seven of whom have other responsibilities for the Company. Sales outside the United States are made by our officers and through exporters, and amounted to approximately 12% in fiscal 2012 and 10% of total sales in the fiscal year ended March 31, 2011.

We also market our products through our website and through our own sales catalogs and brochures, which are mailed directly to trade customers. Our customers, in turn, may advertise our products in their own catalogs and brochures and in their ads in newspapers and other media. We also exhibit and sell our products at various trade shows, including the annual National Hardware Show.

Our backlog of orders believed to be firm as of March 31, 2012 was approximately $2,128,473. Our backlog as of March 31, 2011 was approximately $669,315. This increase in backlog is primarily due to the timing of orders of our safety products.

Hong Kong Joint Venture

We have a 50% interest in Eyston Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of certain of our electronic and electrical products.

We believe that the Hong Kong Joint Venture arrangement will ensure a continuing source of supply for a majority of our safety products at competitive prices. During fiscal years ended 2012 and 2011, 96.2% and 85.6%, respectively, of our total inventory purchases were made from the Hong Kong Joint Venture. The products produced by the Hong Kong Joint Venture include smoke alarms and carbon monoxide alarms. Negative changes in economic and political conditions in China or any other adversity to the Hong Kong Joint Venture will unfavorably affect the value of our investment in the Hong Kong Joint Venture and would have a material adverse effect on the Company’s ability to purchase products for distribution.

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Our purchases from the Hong Kong Joint Venture represented approximately 45.8% of the Hong Kong Joint Venture’s total sales during fiscal 2012 and 28.8% of total sales during fiscal 2011, with the balance of the Hong Kong Joint Venture’s sales being primarily made in Europe and Australia, to unrelated customers. The Hong Kong Joint Venture’s sales to unrelated customers were $12,008,026 in fiscal 2012 and $17,258,918 in fiscal 2011. Please see Note C of the Financial Statements for a comparison of annual sales and earnings of the Hong Kong Joint Venture.

Other Suppliers

Certain private label products not manufactured for us by the Hong Kong Joint Venture are manufactured by other foreign suppliers. We believe that our relationships with our suppliers are good. We believe that the loss of our ability to purchase products from the Hong Kong Joint Venture would have a material adverse effect on the Company. The loss of any of our other suppliers would have a short-term adverse effect on our operations, but replacement sources for these other suppliers could be developed.

Competition

In fiscal year 2012, sales of safety products accounted for substantially all of our total sales. In the sale of smoke alarms and carbon monoxide alarms, we compete in all of our markets with First Alert and Walter Kidde Portable Equipment, Inc. These companies have greater financial resources and financial strength than we have. We believe that our safety products compete favorably in the market primarily on the basis of styling, features and pricing.

The safety industry in general involves changing technology. The success of our products may depend on our ability to improve and update our products in a timely manner and to adapt to new technological advances.

Employees

As of March 31, 2012, we had 16 employees, 12 of whom are engaged in administration and sales, and the balance of whom are engaged in product development. Our employees are not unionized, and we believe that our relations with our employees are satisfactory.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Effective January 2009, we entered into a 10 year operating lease for a 12,000 square foot office and warehouse located in Baltimore County, Maryland. The Company has the right to terminate the lease after five years for a one-time payment of $42,000. In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse space contiguous to our existing warehouse in Baltimore County, Maryland. Monthly rental expense, with common area maintenance, approximates $10,800 and increases 3% per year.

Effective March 2003, we entered into an operating lease for an approximately 2,600 square foot office in Naperville, Illinois. This lease was renewed in March 2012 and increased to approximately 3,400 square feet and extends through February 2015. The monthly rental, with common area maintenance, approximated $3,450 per month during the current fiscal year and is subject to increasing rentals of 3% per year.

The Hong Kong Joint Venture currently operates an approximately 100,000 square foot manufacturing facility in the Guangdong province of Southern China and a 250,000 square-foot manufacturing facility in the Fujian province of Southern China. In addition, the Hong Kong Joint Venture has construction in progress related to an additional 126,000 square foot facility in southern China. The Hong Kong Joint Venture’s offices are leased pursuant to a five year lease with rental payments of approximately $13,250 per month.

The Company believes that its current facilities, and those of the Hong Kong Joint Venture, are currently suitable and adequate.

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ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel, that these matters will not have a material adverse effect on the Company’s financial statements.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information about the Company’s executive officers.

NAME	AGE	POSITIONS
Harvey B. Grossblatt	65	President, Chief Operating Officer and Chief Executive Officer
James B. Huff	60	Chief Financial Officer, Secretary and Treasurer

HARVEY B. GROSSBLATT has been a director of the Company since 1996. He served as Chief Financial Officer from October 1983 through August 2004, Secretary and Treasurer of the Company from September 1988 through August 2004, and Chief Operating Officer from April 2003 through August 2004. Mr. Grossblatt was appointed Chief Executive Officer in August 2004.

JAMES B. HUFF was appointed Chief Financial Officer in August 2004 and Secretary and Treasurer in October 2004.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Our common stock, $.01 par value (the “Common Stock”) trades on the NYSE Amex LLC exchange, formerly the American Stock Exchange under the symbol UUU. As of June 15, 2012, there were 225 record holders of the Common Stock. The closing price for the Common Stock on that date was $5.05. We have not paid any cash dividends on our common stock, and it is our present intention to retain all earnings for use in future operations. The following table sets forth the high and low prices for the Common Stock for each full quarterly period during the fiscal years indicated.

Fiscal Year Ended March 31, 2012
First Quarter	High	$	7.89
	Low	$	6.50
Second Quarter	High	$	7.04
	Low	$	4.55
Third Quarter	High	$	6.39
	Low	$	4.51
Fourth Quarter	High	$	5.84
	Low	$	5.27
Fiscal Year Ended March 31, 2011
First Quarter	High	$	7.24
	Low	$	5.16
Second Quarter	High	$	6.31
	Low	$	5.19
Third Quarter	High	$	7.80
	Low	$	5.91
Fourth Quarter	High	$	8.80
	Low	$	6.75

Stock Repurchase Program

The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the fiscal quarter ended March 31, 2012:

					Total Number of
					Shares Purchased		Maximum Number
	Total		Average		As Part of		of Shares that May
	Number of		Price		Publicly		Yet be Purchased
	Shares		Paid per		Announced Plans		Under the Plans or
Period	Purchased		Share		Or Programs		Programs
January 2012		20,398	$	5.52		20,398		58,563
March 2012		10,096	$	5.42		10,096		48,467
Total		30,494	$	5.48		30,494		48,467

In October 2011, the Company announced a stock buyback program and authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. The program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors).

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including the Risk Factors discussed elsewhere in this Annual Report and other risks, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

General

We are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50% owned Hong Kong Joint Venture. Our financial statements detail our sales and other operational results, and report the financial results of the Hong Kong Joint Venture using the equity method. Accordingly, the following discussion and analysis of the fiscal years ended March 31, 2012 and 2011 relate to the operational results of the Company and its consolidated subsidiaries only and includes the Company’s equity share of earnings in the Hong Kong Joint Venture. A discussion and analysis of the Hong Kong Joint Venture’s operational results for these periods is presented below under the heading “Hong Kong Joint Venture.”

While we believe that our overall sales are likely affected by the current global economic situation, we believe that we are specifically negatively impacted by the severe downturn in the U.S. housing market. As stated elsewhere in this report, our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies). Every downturn in new home construction and new home sales negatively impacts sales by our USI Electric subsidiary. We anticipate that when and as the housing market recovers, sales by our USI Electric subsidiary will improve, as well.

Our operating results for the current fiscal year ended March 31, 2012 continue to be significantly impacted by the continued economic downturn of the U.S. housing market. In addition, sales of our new generation of smoke and carbon monoxide alarms were delayed while the Company pursued obtaining the necessary independent testing agency approvals necessary to begin Canadian and U.S. sales and marketing. By the beginning of the fourth quarter of the fiscal year ended March 31, 2012, the Company had obtained the necessary independent testing agency approvals and had commenced sales in both the Canadian and U.S. markets. The Company has commenced efforts to introduce our new technology to the market and we anticipate increased quarterly sales as a result of these efforts and the availability of our next generation of products to the market.

Comparison of Results of Operations for the Years Ended March 31, 2012 and 2011

Sales. In fiscal year 2012, our net sales are $13,304,602 compared to sales in the prior year of $13,249,604, an increase of $54,998, or less than one percent.

Gross Profit. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit margin for the fiscal year ended March 31, 2012 was 26.4% compared to 28.4% in fiscal 2011. The decrease in 2012 gross margin is attributed to increased cost of product sold resulting from costs incurred to meet delivery commitments to a retail customer in the Canadian market.

Selling, General and Administrative Expense. Selling, general and administrative expenses increased from $4,375,241 in fiscal 2011 to $4,389,818 in fiscal 2012. As a percentage of net sales, these expenses were 33.0% for the fiscal year ended March 31, 2012 and March 31, 2011.

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Research and Development. Research and development expense for the fiscal year ended March 31, 2012 was $570,952, of which approximately $400,000 was for new product development. Research and development expense for the fiscal year ended March 31, 2011 was $615,639, of which approximately $400,000 was for new product development. The decrease in overall research and development expense for the 2012 period compared to the 2011 period was due to certain projects reaching a stage of completion during the year.

Investment and Interest Income. Investment and interest income for the fiscal year ended March 31, 2012 consisted of interest earned on cash deposits with our factor. During the fiscal years ended March 31, 2012 and 2011, we earned interest of $56,183 and $32,262, respectively from these deposits. The increase in the amount of interest earned from our factor on these deposits during the 2012 period relates to the transfer of excess cash to cash deposits with our factor from investments. Total investment and interest income declined for the year due to substantially reduced balances maintained in assets held for investment as funds were withdrawn and used to build inventory.

Investment and interest income for the fiscal year ended March 31, 2011 was $213,086. Investment and interest income is primarily earned on investments. These assets represent the investment of idle cash resources to obtain higher yields of return. Amounts were first invested in late March of the fiscal year ended March 31, 2010 and accordingly amounts earned in the fiscal year ended 2011 represent the first full year of activity on these investments.

Interest Expense. During the fiscal years ended March 31, 2012 and 2011, we incurred interest expense of $0 and $4,166, respectively. Interest expense for fiscal 2012 decreased to $0 from $4,166 in fiscal 2011. The decrease is due to a reduction in borrowing activity with our factor in fiscal 2012.

Income Taxes. For the fiscal years ended March 31, 2012 and 2011, our Federal rate of tax based on statutory rates of approximately 34.0%. The rate of tax indicated by the provision for income tax expense as shown on the Consolidated Statements of Operations for the March 31, 2012 and 2011 varies from the expected statutory rate. Footnote G to the financial statements provides a reconciliation between the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of tax for each fiscal period.

For the fiscal year ended March 31, 2012, we generated net operating loss carryovers and tax credits to offset future federal and state income taxes of $765,456 and $21,077, respectively. At March 31, 2012, we had net operating loss carryovers and tax credit carryovers of $1,578,107 and $1,605,664, respectively.

For the fiscal year ended March 31, 2011, we generated net operating loss carryovers to offset a federal and state income tax provision of approximately $261,530. Furthermore, we generated additional tax credits of $130,497 for the fiscal year ended March 31, 2011. We elected to carry our remaining net operating loss of approximately $812,651 forward to offset future taxable income. At March 31, 2011, we had tax credits of approximately $1,571,072 available to offset future taxes.

Net Loss and Income. We reported a net loss of $503,288 for the fiscal year 2012, compared to net income of $817,781 for fiscal 2011, a $1,321,069 (161.5%) decrease. The decrease in net income is primarily attributed to significantly lower earnings of the Hong Kong Joint Venture principally due to lower sales to non-affiliated customers, higher selling costs incurred to meet delivery commitments to U.S. customers and a decrease in investment and interest income due to a decrease in cash invested in short-term instruments. Our equity in the earnings of the Hong Kong Joint Venture declined from $1,691,133 in fiscal 2011 to $500,502 in fiscal 2012, a $1,190,631 (70.4%) decrease.

Financial Condition, Liquidity and Capital Resources

Our cash needs are currently met by funds generated from operations and from our Factoring Agreement with CIT Group, which supplies both short-term borrowings and letters of credit to finance foreign inventory purchases. The maximum we may borrow under this Agreement is $1,000,000. Based on specified percentages of our accounts receivable and inventory and letter of credit commitments, at March 31, 2012, our maximum borrowing availability under this Agreement was $1,000,000. Any outstanding principal balance under this Agreement is payable upon demand. The interest rate on the Factoring Agreement, on the uncollected factored accounts receivable and any additional borrowings is equal to the prime rate of interest charged by the factor which, as of March 31, 2012, was 3.25%. All borrowings are collateralized by all our accounts receivable and inventory. During the year ended March 31, 2012, working capital (computed as the excess of current assets over current liabilities) decreased by $1,047,596, from $11,540,103 on March 31, 2011, to $10,492,507 on March 31, 2012.

Our operating activities used cash of $3,823,293 for the year ended March 31, 2012 principally as a result of increasing inventories by $1,864,529, the earnings of our Hong Kong Joint Venture of $500,502, as previously discussed, lower earnings from domestic operations due to lower gross profit margins, an increase in accounts receivable and amounts due from factor of $384,947 and a decrease in trade accounts payable and accrued expenses of $164,728.

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Our operating activities used cash of $67,168 for the year ended March 31, 2011 principally as a result of lower income due to the impact of declining sales, offset by a decline in accounts receivable and amounts due from factor that provided cash of $2,157,589, which was partially offset by a use of cash associated with lower Joint Venture earnings of $1,691,133. Other items using cash include an increase in deferred tax assets of $125,405, an increase in inventories of $94,105, an increase in prepaid expenses of $168,165, a decrease in accounts payable and accrued expenses of $1,004,757 and an increase in other assets of $19,998.

Our investing activities provided cash during the fiscal year ended March 31, 2012 of $556,870, principally from cash distributions received from the Hong Kong Joint Venture.

Our investing activities provided cash of $4,542,130 during fiscal 2011 principally as a result of the sale of our investment in short-term investments of $4,001,890 and by cash distributions of the Hong Kong Joint Venture of $694,976. In addition, the Company acquired equipment of $65,302 and incurred costs of $89,434 associated with filing patents during the year.

Financing activities used cash of $275,896 during the fiscal year ended March 31, 2012, resulting from the repurchase of the Company’s common stock in accordance with the Company’s stock repurchase plan.

No cash was provided or used by financing activities in 2011.

While sales by the Company and by our USI Electric subsidiary have been negatively impacted by the severe downturn in the U.S. housing market, we believe that our capital resources are sufficient for our operations. We anticipate that when and as the housing market recovers, sales by the Company and by our USI Electric subsidiary will improve, as well, thereby increasing our capital resources.

Hong Kong Joint Venture

The financial statements of the Hong Kong Joint Venture are included in this Form 10-K beginning on page JV-1. The reader should refer to these financial statements for additional information. There are no material Hong Kong to US GAAP differences in the Hong Kong Joint Venture’s accounting policies.

In fiscal year 2012, sales of the Hong Kong Joint Venture were $22,160,107, compared to $24,231,557 in fiscal 2011. The decrease in sales for fiscal 2012 is primarily due to the decrease in sales to unaffiliated customers.

Net income was $1,259,210 for fiscal year 2012 compared to net income of $3,339,499 for the fiscal year ended March 31, 2011. The decrease in net income for fiscal 2012 was primarily due to decreased sales to unaffiliated customers while fixed costs did not change in the same proportion as the decline in sales.

Gross margins of the Hong Kong Joint Venture for fiscal 2012 decreased to 22.6% from 26.6% in the prior fiscal year. The primary reason for the decrease is lower selling prices to the Company for sales to the US. retail market.

Selling, general and administrative expenses of the Hong Kong Joint Venture for fiscal 2012 were $4,002,052, compared to $3,447,358 in the prior fiscal year. The increase in dollars as compared to the prior fiscal year results from a reversal of value-added tax recorded in the prior fiscal year. As a percentage of sales, these expenses were 18.1% and 14.2%, respectively, for the fiscal years ended March 31, 2012 and 2011. The increase as a percentage is due to costs that do not decrease at the same rate as sales.

Investment income and interest income, net of interest expense was $458,191 for fiscal year 2012, compared to $387,887 for fiscal year 2011. The increase in interest income net of interest expense was due to increased investment in assets held for investment.

Cash needs of the Hong Kong Joint Venture are currently met by funds generated from operations. During fiscal year 2011, working capital increased from $10,290,546 on March 31, 2011 to $10,432,351 on March 31, 2012.

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Critical Accounting Policies

Management’s discussion and analysis of our consolidated financial statements and results of operations are based upon our Consolidated Financial Statement included as part of this document. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, impairment of long-lived assets, and contingencies and litigation. We base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect management’s more significant judgments and estimates used in the preparation of its consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note A to the consolidated financial statements included in this Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our critical accounting policies include:

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided whenever it is more likely than not that a deferred tax credit will not be realized. The Company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expenses, See Note G, Income Taxes.

Revenue Recognition: Revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed and collectability of the related receivable is reasonably assured. We establish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience. The Company nets the factored accounts receivable with the corresponding advance from the Factor, with the net amount reflected in the consolidated balance sheet. The Company sells trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis.

Inventories: Inventories are valued at the lower of market or cost. Cost is determined on the first in/first out method. We have recorded a reserve for obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Management reviews the reserve quarterly.

Recently Issued Accounting Pronouncements

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updated (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASU’s. Recently issues ASU’s were evaluated and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report.

- 11 -

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as such item is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that is designed to provide reasonable assurance that information, which is required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this annual report, and have concluded that the system is effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Our Chief Financial Officer, with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 31, 2012.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

- 12 -

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Election of Directors” in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 2012 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K. The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings and Committees of the Board of Directors” in the Proxy Statement. The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned “Compliance with Section 16(a) of the Exchange Act” in the Proxy Statement. The information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code of Ethics” in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the sections captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership” and “Information Regarding Share Ownership of Management” in the Proxy Statement. Information required by this item regarding our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation” in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any, and “Election of Directors” in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants” in the Proxy Statement.

- 13 -

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	Page
(a) 1. Financial Statements.
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of March 31, 2012 and 2011	F-2
Consolidated Statements of Operations for the Years Ended March 31, 2012 and 2011	F-3
Consolidated Statements of Shareholders’ Equity for the Years Ended March 31, 2012 and 2011	F-4
Consolidated Statements of Cash Flows for the Years Ended March 31, 2012 and 2011	F-5
Notes to Consolidated Financial Statements	F-6
(a) 2. Financial Statement Schedules.
Schedule II – Valuation of Qualifying Accounts	S-1

(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.

Exhibit No.

3.1 Articles of Incorporation (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 1988, File No. 1-31747)

3.2 Articles Supplementary, filed October 14, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 31, 2002, file No. 1-31747)

3.3 Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 13, 2011, File No. 1-31747)

10.1 2011 Non-Qualified Stock Option Plan (incorporated by reference to the Company’s Proxy Statement with respect to the Company’s 2011 Annual Meeting of Shareholders, filed July 26, 2011, File No. 1-31747)

10.2 Hong Kong Joint Venture Agreement, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, File No. 1-31747)

10.3 Amended and Restated Factoring Agreement between the Registrant and The CIT Group/Commercial Services, Inc. (“CIT”), dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 26, 2007, file No. 1-31747)

10.4 Amended and Restated Inventory Security Agreement between the Registrant and CIT, dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 26, 2007, file No. 1-31747)

10.5 Amendment, dated December 22, 2009, to Amended and Restated Factoring Agreement between the Registrant and CIT dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed February 16, 2010, file No. 1-31747)

10.6 Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated November 4, 2008 for its office and warehouse located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2008, File No. 1-31747)

10.7 Amendment to Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated June 23, 2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, File No. 1-31747)

10.8 Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2007, File No. 1-31747), as amended by Addendum dated November 13, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No. 1-31747), by Addendum dated September 8, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No. 1-31747), and by Addendum dated March 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No. 1-31747)

14 Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, File No. 1-31747)

21 Subsidiaries of the Registrant*

- 14 -

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*

31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*

32.1 Section 1350 Certifications*

99.1 Press Release dated June 26, 2012*

101 Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of March 31, 2012 and 2011; (ii) Consolidated Statements of Operations for the years ended March 31, 2012 and 2011; (iii) Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the years ended March 31, 2012 and 2011; and (v) Notes to Consolidated Financial Statements*

*Filed herewith

(c) Financial Statements Required by Regulation S-X.

Separate financial statements of the Hong Kong Joint Venture
Report of Independent Registered Public Accounting Firm	JV-1
Consolidated Statement of Comprehensive Income	JV-2
Consolidated Statement of Financial Position	JV-3
Statement of Financial Position	JV-4
Consolidated Statement of Changes in Equity	JV-5
Consolidated Statement of Cash Flows	JV-6
Notes to Financial Statements	JV-7

- 15 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNIVERSAL SECURITY INSTRUMENTS, INC.
June 28, 2012	By:	/s/ Harvey B. Grossblatt
		Harvey B. Grossblatt
		President and Chief Executive Officer
		(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Harvey B. Grossblatt	President, Chief Executive Officer	June 28, 2012
Harvey B. Grossblatt	and Director
/s/ James B. Huff	Chief Financial Officer	June 28, 2012
James B. Huff	(principal financial officer and
	principal accounting officer)
/s/ Cary Luskin	Director	June 28, 2012
Cary Luskin
/s/ Ronald A. Seff	Director	June 28, 2012
Ronald A. Seff
/s/ Ira Bormel	Director	June 28, 2012
Ira Bormel

- 16 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Universal Security Instruments, Inc.

We have audited the accompanying consolidated balance sheets of Universal Security Instruments, Inc. (a Maryland Corporation) and subsidiaries (the Company) as of March 31, 2012 and 2011, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Security Instruments, Inc. and subsidiaries as of March 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Grant Thornton LLP

Baltimore, Maryland

June 28, 2012

F-1

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31
	2012		2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,186,274	$	6,728,593
Accounts receivable:
Trade less allowance for doubtful accounts of approximately $75,000 at March 31, 2012 and 2011		229,027		276,463
Other receivables		68,230		69,666
Receivable from Hong Kong Joint Venture		584,594		301,380
		881,851		647,509
Amount due from factor		1,719,731		1,569,126
Inventories, net of allowance for obsolete inventory of $70,000 at March 31, 2012 and $100,000 at March 31, 2011		5,398,540		3,534,011
Prepaid expenses		599,876		519,356
TOTAL CURRENT ASSETS		11,786,272		12,998,595
DEFERRED TAX ASSET		2,394,801		2,002,561
INVESTMENT IN HONG KONG JOINT VENTURE		13,083,493		13,149,614
PROPERTY AND EQUIPMENT – NET		176,144		203,440
INTANGIBLE ASSET - NET		84,962		89,434
OTHER ASSETS		40,134		40,134
TOTAL ASSETS	$	27,565,806	$	28,483,778
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	673,524	$	794,014
Hong Kong Joint Venture accounts payable		449,430		453,480
Accrued liabilities:
Payroll and employee benefits		111,974		177,298
Commissions and other		58,837		33,700
TOTAL CURRENT LIABILITIES		1,293,765		1,458,492
Long-term obligation – other		25,000		25,000
COMMITMENTS AND CONTINGENCIES		-		-
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value per share; 20,000,000 authorized and 2,336,354 shares outstanding at March 31, 2012 and 2,387,887 shares issued and outstanding at March 31, 2011.		23,364		23,879
Additional paid-in capital		12,885,756		13,135,198
Retained earnings		13,337,921		13,841,209
TOTAL SHAREHOLDERS’ EQUITY		26,247,041		27,000,286
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	27,565,806	$	28,483,778

The accompanying notes are an integral part of these consolidated financial statements

F-2

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended March 31
	2012			2011
Net sales	$	13,304,602		$	13,249,604
Cost of goods sold – acquired from Joint Venture		9,420,225			7,024,044
Cost of goods sold - other		373,179			2,463,815
GROSS PROFIT		3,511,198			3,761,745
Research and development expense		570,952			615,639
Selling, general and administrative expense		4,389,818			4,375,241
Operating loss		(1,449,572	)		(1,229,135	)
Other income (expense):
Interest expense		-			(4,166	)
Investment and interest income		56,182			213,086
		56,182			208,920
LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE		(1,393,390	)		(1,020,215	)
Equity in earnings of Hong Kong Joint Venture		500,502			1,691,133
(Loss) income from operations before income taxes		(892,888	)		670,918
Income tax benefit		(389,600	)		(146,863	)
NET (LOSS) INCOME	$	(503,288	)	$	817,781
(Loss) income per share:
Basic	$	(0.21	)	$	0.34
Diluted	$	(0.21	)	$	0.34
Shares used in computing net income per share:
Basic		2,374,952			2,387,887
Diluted		2,374,952			2,395,766

The accompanying notes are an integral part of these consolidated financial statements

F-3

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock						Additional Paid-In			Retained
	Shares			Amount			Capital			Earnings			Total
Balance at April 1, 2010		2,387,887		$	23,879		$	13,135,198		$	13,023,428		$	26,182,505
Net income		-			-			-			817,781			817,781
Balance at March 31, 2011		2,387,887		$	23,879		$	13,135,198		$	13,841,209		$	27,000,286
Stock based compensation		-			-			25,939			-			25,939
Repurchase of common stock		(51,533	)		(515	)		(275,381	)		-			(275,896	)
Net loss		-			-			-			(503,288	)		(503,288	)
Balance at March 31, 2012		2,336,354		$	23,364		$	12,885,756		$	13,337,921		$	26,247,041

F-4

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES OPERATING ACTIVITIES
Net (loss) income	$	(503,288	)	$	817,781
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		41,522			61,025
Stock based compensation		25,939			-
Deferred income taxes		(392,240	)		(125,405	)
Earnings of the Hong Kong Joint Venture		(500,502	)		(1,691,133	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and amounts due from factor		(384,947	)		2,157,589
(Increase) in inventories		(1,864,529	)		(94,105	)
(Increase) in prepaid expenses		(80,520	)		(168,165	)
(Decrease) in accounts payable and accrued expenses		(164,728	)		(1,004,757	)
(Increase) in other assets		-			(19,998	)
NET CASH (USED IN) OPERATING ACTIVITIES		(3,823,293	)		(67,168	)
INVESTING ACTIVITIES:
Proceeds from sale of assets held for investment		-			4,001,890
Cash distributions from Joint Venture		566,622			694,976
Purchase of equipment		(9,752	)		(65,302	)
Patent costs capitalized		-			(89,434	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		556,870			4,542,130
FINANCING ACTIVITIES:
Repurchase of common stock		(275,896	)		-
NET CASH USED IN FINANCING ACTIVITIES		(275,896	)		-
(DECREASE) INCREASE IN CASH		(3,542,319	)		4,474,962
Cash at beginning of period		6,728,593			2,253,631
CASH AT END OF PERIOD	$	3,186,274		$	6,728,593
Supplemental information:
Interest paid	$	-		$	4,166
Income taxes recovered (paid)	$	-		$	-

F-5

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: Universal Security Instruments, Inc.’s (“the Company”) primary business is the sale of smoke alarms and other safety products to retailers, wholesale distributors and to the electrical distribution trade which includes electrical and lighting distributors as well as manufactured housing companies. The Company imports all of its safety and other products from foreign manufacturers. The Company, as an importer, is subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We believe that our 50% ownership interest in the Hong Kong Joint Venture allows us to significantly influence the operations of the Hong Kong Joint Venture. As such, we account for our interest in the Hong Kong Joint Venture using the equity method of accounting. We have included our investment balance as a non-current asset and have included our share of the Hong Kong Joint Venture’s income in our consolidated statement of operations. The investment and earnings are adjusted to eliminate intercompany profits.

Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. At times, the Company maintains cash and investment balances in financial institutions, which may exceed federally insured limits. The Company has not experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents and investments. The carrying value of cash and cash equivalents approximates their fair value based on their short-term maturities at March 31, 2012 and 2011.

Revenue Recognition: The Company recognizes sales upon shipment of products, when title has passed to the buyer, net of applicable provisions for any discounts or allowances. We recognize revenue when the following criterion are met: evidence of an arrangement, fixed and determinable fee, delivery has taken place, and collectability is reasonably assured. Customers may not return, exchange or refuse acceptance of goods without our approval. We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Warranties: We generally provide warranties, on the safety products, from one to ten years to the non-commercial end user on all products sold. The manufacturers of our safety products provide us with a one-year warranty on all products we purchase for resale. Claims for warranty replacement of products beyond the one-year warranty period covered by the manufacturers have not been historically material and we do not record estimated warranty expense or a contingent liability for warranty claims.

Stock-Based Compensation: In October 2011, the stockholders approved the Company’s 2011 Non-Qualified Stock Option Plan authorizing the issuance of 120,000 options to purchase the Company’s common stock. At March 31, 2012, 97,000 options have been issued at an exercise price of $5.51.

We account for share-based payments using the fair value method. We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis based on the value of share awards that are expected to vest during the requisite service period on the grant date, which is revised if actual forfeitures differ materially from original expectations.

The expected term of stock options granted was based on the Company’s historical option exercise experience and post-vesting forfeiture experience using the historical expected term from the vesting date. The expected volatility of the options granted was determined using historical volatilities based on stock prices over a look-back period corresponding to the expected term. The risk-free interest rate was determined using the yield available for zero-coupon U.S. government issues with a remaining term equal to the expected term of the options. The forfeiture rate was determined using historical pre-vesting forfeiture rates since the inception of the plans. The company has never paid a dividend; and, as such, the dividend yield is zero.

F-6

Stock Repurchase Program: In October 2011, the Company announced a stock buyback program under which the Board authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. The program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors).

The following table sets forth information with respect to purchases by the Company of its common stock during the fiscal year ended March 31, 2012:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans Or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
November 2011		11,000	$	5.35		11,000		89,000
December 2011		10,039	$	5.08		10,039		78,961
January 2012		20,398	$	5.52		20,398		58,563
March 2012		10,096	$	5.42		10,096		48,467
Total		51,533	$	5.39		51,533		48,467

Research and Development: Research and development costs are charged to operations as incurred.

Accounts Receivable: The Company nets the factored accounts receivable with the corresponding advance from the Factor, with the net amount reflected in the consolidated balance sheet.

The Company sells trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis. Factoring charges recognized on sales of receivables are included in selling, general and administrative expenses in the consolidated statements of income and amounted to $56,943 and $57,161 for the years ended March 31, 2012 and 2011, respectively. The Agreement for the sale of accounts receivable provides for continuation of the program on a revolving basis until terminated by one of the parties to the Agreement.

Financing Receivables. In September 2010, the FASB issued, and the Company adopted, an Accounting Standards Update requiring enhanced disclosure of the credit quality of financing receivables, as defined therein, and the adequacy of allowances for credit losses. Management considers amounts due from the Company’s factor to be “financing receivables”. Trade accounts receivable, other receivables, and receivables from our Hong Kong Joint Venture are not considered to be financing receivables.

The Company sells the majority of its short-term receivables arising in the ordinary course of business to our factor. At the time a receivable is sold to our factor the credit risk associated with the credit worthiness of the debtor is assumed by the factor. The Company continues to bear any credit risk associated with delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the allowance account from one accounting period to the next are charged to operations in the period the change is determined. Amounts ultimately determined to be uncollectible are eliminated from the receivable accounts and from the allowance account in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no allowance for uncollectible financing receivables has been provided. At March 31, 2012, an allowance of $75,000 has been provided for uncollectible trade accounts receivable.

Shipping and Handling Fees and Costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are included in cost of goods sold. Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $356,171 and $308,278 in fiscal years 2012 and 2011, respectively.

F-7

Inventories: Inventories are stated at the lower of cost (first in/first out method) or market. Included as a component of finished goods inventory are additional non-material costs. These costs include overhead costs, freight, import duty and inspection fees of $571,219 and $398,397 at March 31, 2012 and 2011, respectively. Inventories are shown net of an allowance for inventory obsolescence of $70,000 and $100,000 as of March 31, 2012 and 2011, respectively.

The Company reviews inventory quarterly to identify slow moving products and valuation allowances are adjusted when deemed necessary.

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided, whenever it is more likely than not that a deferred tax asset will not be realized. The Company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expenses, See Note F, Income Taxes.

Recently Issued Accounting Pronouncements: Changes to accounting principles generally accepted in the United States of America (US. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updated (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASU’s. Recently issued ASU’s were evaluated and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

Foreign currency: The activity and accounts of the Hong Kong Joint Venture are denominated in Hong Kong dollars and are translated to US dollars in consolidation. The Company translates the accounts of the Hong Kong Joint Venture at the applicable exchange rate in effect at the year end date for balance sheet purposes and at the average exchange rate for the reporting period for statement of operation purposes. Transaction gains and losses arising from transactions denominated in foreign currencies are included in the results of operations. The Company currently does not maintain cash in foreign banks to support its operations in Hong Kong.

Net Income per Share: The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the period. All common share equivalents are comprised of stock options. Diluted loss per common share for the year ended March 31, 2012 excludes the effect of all stock options, as their effect is antidilutive. As a result, the weighted average number of common shares outstanding is identical for the year ended March 31, 2012 for both basic and diluted shares.

	March 31,
	2012		2011
Weighted average number of common shares outstanding for basic EPS		2,374,952		2,387,887
Shares issued upon assumed exercise of outstanding stock options		-		7,879
Weighted average number of common and common equivalent shares outstanding for diluted EPS		2,374,952		2,395,766

NOTE B – PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided by using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.

F-8

The estimated useful lives for financial reporting purposes are as follows:

Leasehold improvements	-	Shorter of term of lease or useful life of asset
Machinery and equipment	-	5 to 10 years
Furniture and fixtures	-	5 to 15 years
Computer equipment	-	5 years

Property and equipment consist of the following:

	March 31,
	2012			2011
Leasehold improvements	$	166,772		$	166,772
Machinery and equipment		190,400			189,276
Furniture and fixtures		256,558			251,611
Computer equipment		245,944			242,003
		859,674			849,662
Less accumulated depreciation		(683,530	)		(646,222	)
	$	176,144		$	203,440

Depreciation and amortization expense totaled $41,522 and $61,025 for fiscal years ended March 31, 2012 and 2011, respectively.

NOTE C - INVESTMENT IN THE HONG KONG JOINT VENTURE

The Company holds a 50% interest in a Joint Venture with a Hong Kong Corporation, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of consumer electronic products. As of March 31, 2012, the Company has an investment balance of $13,083,493 for its 50% interest in the Hong Kong Joint Venture. There are no material differences between the generally accepted accounting principles (GAAP) used in the Hong Kong Joint Venture’s accounting policies when compared to US GAAP.

The following represents summarized financial information derived from the audited financial statements of the Hong Kong Joint Venture as of March 31, 2012 and 2011.

	March 31,
	2012		2011
Current assets	$	14,753,305	$	14,127,686
Property and other assets		17,791,497		17,208,266
Total	$	32,544,802	$	31,335,952
Current liabilities	$	4,320,954	$	3,837,140
Non-current liabilities		6,014		24,116
Equity		28,217,834		27,474,696
Total	$	32,544,802	$	31,335,952

	For the Year Ended March 31,
	2012		2011
Net sales	$	22,160,107	$	24,231,557
Gross profit		5,011,795		6,444,936
Net income		1,259,210		3,339,499

During the years ended March 31, 2012 and 2011, the Company purchased $10,152,081 and $8,130,109, respectively, of finished product from the Hong Kong Joint Venture, which represents 96.2% and 85.6%, respectively, of the Company’s total finished product purchases for the years ended at March 31, 2012 and 2011. Amounts due the Hong Kong Joint Venture included in Accounts Payable totaled $449,430 and $453,480 at March 31, 2012 and 2011, respectively. Amounts due from the Hong Kong Joint Venture included in Accounts Receivable totaled $584,594 and $301,380 at March 31, 2012 and 2011, respectively.

F-9

The Company’s investment in the Hong Kong Joint Venture as recorded on the Company’s Consolidated Balance sheets has been adjusted by the intercompany profit of the Hong Kong Joint Venture in the Inventory of the Company.

NOTE D - AMOUNTS DUE FROM FACTOR

The Company sells certain of its trade receivables on a pre-approved, non-recourse basis to a Factor. Since these are sold on a non-recourse basis, the factored trade receivables and related repayment obligations are not separately recorded in the Company’s consolidated balance sheets. The Agreement provides for financing of up to a maximum of $1,000,000 with the amount available at any one time based on cash on deposit, 90% of uncollected non-recourse receivables sold to the factor, and 50% of qualifying inventory. Financing of approximately $1,000,000 is available at March 31, 2012. Any outstanding amounts due to the factor are payable upon demand and bear interest at the prime rate of interest charged by the factor, which is 3.25% at March 31, 2012. Any amount due to the factor is also secured by the Company’s inventory. There were no borrowings outstanding under this agreement at March 31, 2012.

Under this Factoring Agreement, the Company sold receivables of approximately $9,979,020 and $10,360,042 during the years ended March 31, 2012 and 2011, respectively. Gains and losses recognized on the sale of factored receivables include the fair value of the limited recourse obligation. The uncollected balance of non-recourse receivables held by the factor amounted to $1,719,731 and $1,569,126 at March 31, 2012 and 2011. The amount of the uncollected balance of non-recourse receivables borrowed by the Company as of March 31, 2012 and 2011 is $0 and $0, respectively. Collected cash maintained on deposit with the factor earns interest at the factor’s prime rate of interest less three percentage points (effective rate of 0.25%) at March 31, 2012 and 2011.

NOTE E - LEASES

During January 2009, the Company entered into an operating lease for its office and warehouse location in Owings Mills, Maryland which expires in March 2019. This lease is subject to increasing rentals at 3% per year. In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse. The Company has the right to terminate the lease after five years for a one-time payment of $42,000. In February 2004, the Company entered into an operating lease for 2,600 square foot office in Naperville, Illinois. During fiscal 2012, the lease was expanded to approximately 3,400 square feet and the lease was extended to February 2015 with rentals increasing at 3% per year.

Each of the operating leases for real estate has renewal options with terms and conditions similar to the original lease. Rent expense, including common area maintenance, totaled $176,575 and $171,080 for the years ended March 31, 2012 and 2011, respectively.

	2013		2014		2015		2016
Future minimum lease payments are as follows:		192,534		204,558		53,781		2,997

NOTE F – INCOME TAXES

The Company files its income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Deferred income tax assets and liabilities are computed and recognized for those differences that have future tax consequences and will result in net taxable or deductible amounts in future periods. Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred taxes. The deferred tax liabilities and assets for the Company result primarily from tax credit carryforwards, reserves and accrued liabilities

For the fiscal year ended March 31, 2012, the Company has an accumulated net operating loss carryover of approximately $1,578,107 that the Company may carry-forward to offset future taxable income. The Company generated no foreign tax credits for the period. At March 31, 2012, the Company has $1,522,886 of foreign tax and $82,778 of research and development credit carry-forward available to offset future federal income taxes.

F-10

For the fiscal year ended March 31, 2011, the Company has an accumulated net operating loss of approximately $812,651 that the Company may carryforward to offset future taxable income. The Company generated $113,136 of foreign tax credits for the period. At March 31, 2011, the Company has $1,522,886 of foreign tax credit carryforward and $48,186 of research and development credit available to offset future federal income taxes.

At March 31, 2012, the Company has net operating loss carryforwards and tax benefit carryforwards of $1,578,107 and $1,605,664, respectively, which expire at various dates from 2013 through 2030.  There are certain limitations to the use and application of these deferred tax assets.

Management reviews net operating loss carryforwards and income tax credit carryforwards to evaluate if those amounts are recoverable.  Based on historical results and projections of future operations and taxable income, the recoverability of these deferred tax assets is determined to be more likely than not; and, accordingly, no valuation allowance is deemed necessary at March 31, 2012.

The components of income tax expense (benefit) from continuing operations for the Company are as follows:

	2012			2011
Current benefit
U.S. Federal	$	-		$	(21,459	)
U.S. State		-			-
		-			(21,459	)
Deferred benefit		(389,600	)		(125,404	)
Total income tax benefit	$	(389,600	)	$	(146,863	)

	March 31,
	2012		2011
Deferred tax assets:
Financial statement accruals and allowances	$	68,765	$	54,340
Inventory uniform capitalization		83,098		72,412
Net operating loss carryforward		637,274		304,737
Foreign tax credit carryforward		1,522,886		1,522,886
Research and development tax credit carryforward		82,778		48,186
Net deferred tax asset	$	2,394,801	$	2,002,561

The reconciliation between the statutory federal income tax provision and the actual effective tax provision for continuing operations is as follows:

	Years ended March 31,
	2012			2011
Federal tax (benefit) expense at statutory rate (34%) before loss carry-forward	$	(303,582	)	$	225,374
Non-repatriated earnings of Hong Kong Joint Venture		(18,758	)		(338,693	)
Foreign tax credit		-			(74,670	)
Research and development credit		-			(17,361	)
State income tax expense, net of federal tax effect		-			(5,277	)
Reduction in uncertain tax position liability		-			(21,459	)
Permanent differences		14,551			14,955
True-up adjustments and other		(81,811	)		70,268
Income tax benefit	$	(389,600	)	$	(146,863	)

The Company adopted new income tax guidance regarding uncertain tax positions on April 1, 2007. As a result of the implementation, the Company recognized an $86,000 liability for unrecognized tax benefits, which was accounted for as a reduction of the April 1, 2007 retained earnings balance. The total amount of unrecognized tax attributes as of the date of the adoption was approximately $86,000 and includes income taxes, tax penalties and imputed interest. Interest and penalties related to adjustments to income taxes as filed, have not been significant. The Company includes any such interest and penalties in its tax provision. During the fiscal year ended March 31, 2011, the amount of the unrecognized tax attributes were reduced by $21,459, including deemed interest and penalties. That amount, if ultimately recognized, would reduce the Company’s annual effective tax rate.

NOTE G - SHAREHOLDERS’ EQUITY

Stock Repurchase Program – The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the fiscal year ended March 31, 2012:

F-11

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans Or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
November 2011		11,000	$	5.35		11,000		89,000
December 2011		10,039	$	5.08		10,039		78,961
January 2012		20,398	$	5.52		20,398		58,563
March 2012		10,096	$	5.42		10,096		48,467
Total		51,533	$	5.39		51,533		48,467

In October 2011, the Company announced a stock buyback program and authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. The program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors).

Stock Options – Under the terms of the Company’s 2011 Non-Qualified Stock Option Plan, 120,000 shares of common stock were reserved for the granting of stock options, of which 97,000 options have been issued as of March 31, 2012.

Under the terms of the Company’s now expired 1978 Non-Qualified Stock Option Plan, as amended, 1,170,369 shares of common stock were reserved for the granting of stock options, of which 1,149,638 options had been issued as of March 31, 2009. There are no options outstanding under the 1978 Non-Qualified Stock Option Plan.

In March 2009, 25,000 options were issued at $3.25 for restricted shares of the Company’s common stock. These options were not issued under the now expired 1978 Non-Qualified Stock Option Plan and became fully vested after one year with a right to exercise until March 2014.

The following tables summarize the status of exercisable stock options at March 31, 2012 and option transactions for the years then ended:

Status as of March 31, 2012	Number of Shares
Presently exercisable		25,000
Outstanding options by grant
Number of holders – grant 1		1
Average exercise price per share	$	3.25
Expiration date:		March 2014
Number of holders – grant 2		19
Average exercise price per share	$	5.51
Expiration date:		December 2013

Transactions for the Year Ended March 31, 2012:	Number of Shares		Weighted Average Exercise Price
Outstanding at April 1, 2011		25,000		3.25
Granted		97,000		5.51
Outstanding at March 31, 2012		122,000		5.05

The following table summarizes information about stock options outstanding at March 31, 2011:

		Options Outstanding						Options Exercisable
Range of Exercise Price		Number of Shares		Weighted Average Exercise Price		Weighted Average Contract Life (Yrs)		Number of Shares		Weighted Average Exercise Price
$	3.25		25,000		3.25		5.00		25,000		3.25
$	5.51		97,000		5.51		2.00		97,000		5.51

F-12

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions; no annual dividends, expected volatility of 57.73%, risk-free interest rate of 0.3% and expected lives of two years used for options granted in fiscal 2012. There were no options granted in fiscal 2011. The fair value of options granted in fiscal 2012 approximates $170,000. Fifty percent of the options vest one year after issuance, with the remaining fifty percent vesting twenty-three months after issuance.

As of March 31, 2012, the unrecognized compensation cost related to share-based compensation arrangements that we expect to vest is $144,519. The aggregate intrinsic value of currently exercisable options was $53,250 at March 31, 2012.

NOTE H - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel, that these matters will not have a material adverse effect on the Company’s financial statements.

NOTE I - MAJOR CUSTOMERS

The Company is primarily a distributor of safety products for use in home and business under both its trade names and private labels for other companies. As described in Note C, the Company purchased a majority of its products from its 50% owned Hong Kong Joint Venture.

For the fiscal year ended March 31, 2012, the Company had one customer, Facilities Maintenance, that represented 12.3% of the Company’s product sales.

NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly Results of Operations (Unaudited):

The unaudited quarterly results of operations for fiscal years 2012 and 2011 are summarized as follows:

	Quarter Ended
	June 30,		September 30,			December 31,		March 31,
2012
Net sales	$	3,201,302	$	3,307,514		$	3,186,197	$	3,609,589
Gross profit		872,938		1,000,659			818,527		819,074
Net income (loss)		581		(309,941	)		67,226		(261,154	)
Net income (loss) per share:
Basic		0.00		(0.13	)		0.03		(0.11	)
Diluted		0.00		(0.13	)		0.03		(0.11	)
2011
Net sales	$	3,681,421	$	3,714,378		$	2,475,511	$	3,378,294
Gross profit		1,111,242		1,064,144			751,580		834,779
Net income		281,867		268,376			19,545		247,993
Net income per share:
Basic		0.12		0.11			0.01		0.10
Diluted		0.12		0.11			0.01		0.10

F-13

NOTE K – RETIREMENT PLAN

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code. All full-time employees who have completed 12 months of service are eligible to participate. Employees are permitted to contribute up to the amounts prescribed by law. The Company may provide contributions to the plan consisting of a matching amount equal to a percentage of the employee’s contribution, not to exceed four percent (4%). Employer contributions were $62,769 and $55,029 for the years ended March 31, 2012 and 2011, respectively.

NOTE M – INTANGIBLE ASSETS

Intangible assets consist of legal expenses of $89,434 incurred in obtaining and perfecting patents on newly developed detector technology and are capitalized for financial statement purposes. Upon issuance, patents are amortized over twenty years on a straight-line basis.

The estimated useful lives for financial reporting purposes are as follows:

Intangible patent costs - 20 years

F-14

SCHEDULE II

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED MARCH 31, 2012 AND 2011

	Balance at beginning of year		Charged to cost and expenses		Deductions		Balance at end of year
Year ended March 31, 2012
Allowance for doubtful accounts	$	75,000	$	0	$	0	$	75,000
Year ended March 31, 2011
Allowance for doubtful accounts	$	87,851	$	0	$	12,851	$	75,000
Year ended March 31, 2012
Allowance for inventory reserve		100,000	$	0	$	30,000	$	70,000
Year ended March 31, 2011
Allowance for inventory reserve	$	100,000	$	0	$	0	$	100,000

S-1

EX-21

EXHIBIT 21

SUBSIDIARIES OF UNIVERSAL SECURITY INSTRUMENTS, INC.

Name	Incorporated in
USI Electric, Inc.	Texas

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Harvey B. Grossblatt, certify that:

1.     I have reviewed this Annual Report on Form 10-K of Universal Security Instruments, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.    The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: June 28, 2012	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, James B. Huff, certify that:

1.     I have reviewed this Annual Report on Form 10-K of Universal Security Instruments, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(e) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(a) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.    The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: June 28, 2012	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

SECTION 1350 CERTIFICATIONS

In connection with the Annual Report of Universal Security Instruments, Inc. (the “Company”) on Form 10-K for the fiscal year ended March 31, 2012 as filed with the Securities and Exchange Commission and to which this Certification is an exhibit (the “Report”), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods reflected therein.

Date: June 28, 2012	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	President and Chief Operating Officer
	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

EX-99.1

EXHIBIT 99.1

	For Immediate Release
	Contact: Harvey Grossblatt, President
	Universal Security Instruments, Inc.
	410-363-3000, Ext. 224
	or
	Don Hunt, Jeff Lambert
	Lambert, Edwards & Associates, Inc.
	616-233-0500

Universal Security Instruments Reports Fourth-Quarter and Year-End Results

OWINGS MILLS, Md. June 26, 2012 - Universal Security Instruments, Inc. (NYSE Amex: UUU) today announced results for its fourth quarter and fiscal year ended March 31, 2012.

Universal reported a fourth quarter net loss of $(261,154), or $(0.11) per basic and diluted share, on sales of $3,609,589. These totals compare to net income of $247,993, or $0.10 per basic and diluted share, on sales of $3,378,294 for the comparable period of the previous year.

For the 12 months ended March 31, 2012, sales were $13,304,602 versus $13,249,604 for the same period last year. The Company reported a net loss of $(503,288), or $(0.21) per basic and diluted share, versus net income of $817,781, or $0.34 per basic and diluted share, for the same period last year.

"Despite maintaining steady sales levels, the fiscal year ended March 31, 2012 was clearly a disappointment. The primary reason for our reduced fourth quarter and year end results was lower Joint Venture earnings, which were down approximately $491,000 for the fourth quarter and $1,190,000 for the year. The primary reason for the decline in Joint Venture earnings was lower sales to non-affiliated customers in Europe. At the recent International Hardware Show in Las Vegas, the Company introduced, for the first time, its full line of New Generation products. These products were extremely well received. We remain optimistic that your Company can experience significant sales and earnings growth in fiscal 2013 from the introduction of these products, and we continue to invest heavily to support them,” said Harvey Grossblatt, CEO.

In reference to the 2011 Stock Repurchase Plan approved by the Board of Directors, Mr. Grossblatt announced that the Company had acquired 63,138 shares of its common stock through the date of this press release at an average purchase price of $5.40 per share. Under the plan, the Company may acquire an additional 38,862 shares. At March 31, 2012, the book value of a share of common stock was $11.23.

UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer (through its Hong Kong Joint Venture) and distributor of safety and security devices. Founded in 1969, the Company has a 43 year heritage of developing innovative and easy-to-install products, including smoke, fire and carbon monoxide alarms. For more information on Universal Security Instruments, visit our website at www.universalsecurity.com.

"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties.  Actual results could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other items, our Hong Kong Joint Venture's respective ability to maintain operating profitability, currency fluctuations, the impact of current and future laws and governmental regulations affecting us and our Hong Kong Joint Venture and other factors which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements.  We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

-- more –

11407 CRONHILL DRIVE, SUITE A • OWINGS MILLS, MARYLAND 21117, USA

(410) 363-3000 • www.universalsecurity.com

Universal/Page 2

UNIVERSAL SECURITY INSTRUMENTS, INC.

CONSOLIDATED STATEMENT OF INCOME

	(UNAUDITED)
	Three Months Ended March 31,
	2012			2011
Sales	$	3,609,589		$	3,378,294
Net (loss) income		(261,154	)		247,993
Net (loss) income per share – basic		(0.11	)		0.10
Net (loss) income per share – diluted		(0.11	)		0.10
Weighted average number of common shares outstanding
Basic		2,346,342			2,387,887
Diluted		2,346,342			2,396,830

	(AUDITED)
	Twelve Months Ended March 31,
	2012			2011
Sales	$	13,304,602		$	13,249,604
Net (loss) income		(503,288	)		817,781
Net (loss) income per share – basic		(0.21	)		0.34
Net (loss) income per share – diluted		(0.21	)		0.34
Weighted average number of common shares outstanding
Basic		2,374,952			2,387,887
Diluted		2,374,952			2,395,766

CONSOLIDATED BALANCE SHEET

ASSETS
	March 31,
	2012		2011
Cash, cash equivalents and investments	$	3,186,274	$	6,728,593
Accounts receivable and amount due from factor		2,601,582		2,216,635
Inventory		5,398,540		3,534,011
Prepaid expenses		599,876		519,356
TOTAL CURRENT ASSETS		11,786,272		12,998,595
INVESTMENT IN HONG KONG JOINT VENTURE		13,083,493		13,149,614
PROPERTY, PLANT AND EQUIPMENT – NET		176,144		203,440
DEFERRED TAX ASSET AND OTHER ASSETS		2,519,897		2,132,129
TOTAL ASSETS	$	27,565,806	$	28,483,778
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	1,122,954	$	1,247,494
Accrued liabilities		170,811		210,998
TOTAL CURRENT LIABILITIES		1,293,765		1,458,492
LONG TERM OBLIGATION		25,000		25,000
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value per share; 20,000,000 authorized and 2,336,354 shares outstanding at March 31, 2012; and 2,387,887 shares issued and outstanding at March 31, 2011		23,364		23,879
Additional paid-in capital		12,885,756		13,135,198
Retained earnings		13,337,921		13,841,209
TOTAL SHAREHOLDERS’ EQUITY		26,247,041		27,000,286
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	27,565,806	$	28,483,778

Report and Financial Statements

Eyston Company Limited

For the year ended 31 March 2012

Eyston Company Limited愛斯頓有限公司

Contents

	Page
Reports of Independent Registered Public Accounting Firms	JV-1
Consolidated Statement of Comprehensive Income	JV-2
Consolidated Statement of Financial Position	JV-3
Statement of Financial Position	JV-4
Consolidated Statement of Changes in Equity	JV-5
Consolidated Statement of Cash Flows	JV-6
Notes to the Financial Statements	JV-7

Expressed in Hong Kong dollars (“HK$”)

Eyston Company Limited愛斯頓有限公司

Report of independent registered
public accounting firm

To the Board of Directors of Eyston Company Limited

We have audited the accompanying consolidated statement of financial position of Eyston Company Limited (the “company”) and subsidiaries (together referred to as the “group”), as of March 31, 2012 and 2011, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the two years in the period ended March 31 2012. These financial statements are the responsibility of the group’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eyston Company Limited and Subsidiaries as of March 31, 2012 and 2011, and the consolidated results of its comprehensive income and its cash flows for each of the two years in the period ended March 31, 2012, in accordance with Hong Kong Financial Reporting Standards.

Grant Thornton

Beijing, China

[Date]

JV-1

Eyston Company Limited愛斯頓有限公司

Consolidated statement of comprehensive
income for the year ended 31 March

	Notes		2012			2011
			HK$			HK$
Turnover		5		172,387,321			188,366,366
Cost of sales				(133,399,699	)		(138,271,637	)
Gross profit				38,987,622			50,094,729
Other income		6		4,444,370			5,858,977
Administrative expenses				(31,132,660	)		(26,539,453	)
Profit from operations				12,299,332			29,414,253
Finance costs		7		(35,852	)		(64,783	)
Profit before income tax		8		12,263,480			29,349,470
Income tax expense		9		(2,467,869	)		(2,893,213	)
Profit for the year		10		9,795,611			26,456,257
Other comprehensive income
Changes in fair value of available-for-sale financial assets				954,540			26,923
Exchange differences arising on translation of financial statements of subsidiaries				3,010,364			(337,169	)
Other comprehensive income for the year				3,964,904			(310,246	)
Total comprehensive income for the year				13,760,515			26,146,011

JV-2

Eyston Company Limited愛斯頓有限公司

Consolidated statement of financial position
as at 31 March

	Notes		2012		2011
			HK$		HK$
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment		12		59,105,713		57,397,484
Advanced lease payments		13		13,511,129		13,345,713
Available-for-sale financial assets		14		64,946,120		62,707,788
Pledged bank balances		19		569,775		569,775
				138,132,737		134,020,760
Current assets
Inventories		16		30,313,140		35,345,847
Available-for-sale financial assets		14		2,738,120		4,033,575
Trade and other receivables		17		12,071,964		3,734,519
Amount due from a shareholder		20		1,003,858		3,967,752
Cash and cash equivalents		19		68,417,212		62,947,017
				114,544,294		110,028,710
Current liabilities
Trade and other payables				26,158,587		22,382,706
Obligations under finance lease				-		10,700
Amount due to a related company		20		2,126,928		1,867,192
Loans from shareholders		21		2,868,954		2,868,954
Provision for taxation				2,393,308		2,754,717
				33,547,777		29,884,269
Net current assets				80,996,517		80,144,441
Non-current liabilities
Deferred tax liabilities		22		46,693		3,844
Net assets				219,082,561		214,161,357
EQUITY
Share capital		23		200		200
Reserves		24		219,082,361		214,161,157
				219,082,561		214,161,357

JV-3

Eyston Company Limited愛斯頓有限公司

Statement of financial position
as at 31 March

	Notes		2012		2011
			HK$		HK$
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment		12		2,419,397		1,914,385
Available-for-sale financial assets		14		64,946,120		62,707,788
Interests in subsidiaries		15		155,957,816		140,620,975
Pledged bank balances		19		569,775		569,775
				223,893,108		205,812,923
Current assets
Inventories		16		30,313,140		35,345,847
Available-for-sale financial assets		14		2,738,120		4,033,575
Other receivables				1,651,021		1,405,909
Amounts due from subsidiaries		18		18,530,521		19,682,812
Cash and cash equivalents		19		33,989,265		24,078,565
				87,222,067		84,546,708
Current liabilities
Trade and other payables				12,676,555		11,188,719
Obligations under finance lease				-		10,700
Amount due to a subsidiary		18		240,805		1,349,006
Amount due to a related company		20		2,126,928		1,867,192
Loans from shareholders		21		2,868,954		2,868,954
Provision for taxation				71,571		434,976
				17,984,813		17,719,547
Net current assets				69,237,254		66,827,161
Non-current liabilities
Deferred tax liabilities		22		46,693		3,844
Net assets				293,083,669		272,636,240
EQUITY
Share capital		23		200		200
Reserves		24		293,083,469		272,636,040
				293,083,669		272,636,240

JV-4

Eyston Company Limited愛斯頓有限公司

Consolidated statement of changes in equity

	Share		Exchange			Fair value			Retained
	capital		reserve			Reserve			profits			Total
	HK$		HK$			HK$			HK$			HK$
Balance at 1 April 2010		200		12,249,089			922,382			185,685,324			198,856,995
Dividends declared (note 11)		-		-			-			(10,841,649	)		(10,841,649	)
Transaction with owners		-		-			-			(10,841,649	)		(10,841,649	)
Profit for the year		-		-			-			26,456,257			26,456,257
Other comprehensive income
Change in fair value of available-for-sale financial assets		-		-			26,923			-			26,923
Exchange differences arising on translation of financial statements of subsidiaries		-		(337,169	)		-			-			(337,169	)
Total comprehensive income for the year		-		(337,169	)		26,923			26,456,257			26,146,011
Balance at 31 March 2011 and 1 April 2011		200		11,911,920			949,305			201,299,932			214,161,357
Dividends declared (note 11)		-		-			-			(8,839,311	)		(8,839,311	)
Transaction with owners		-		-			-			(8,839,311	)		(8,839,311	)
Profit for the year		-		-			-			9,795,611			9,795,611
Other comprehensive income
Change in fair value of available-for-sale financial assets		-		-			954,540			-			954,540
Exchange differences arising on translation of financial statements of subsidiaries		-		3,010,364			-			-			3,010,364
Total comprehensive income for the year		-		3,010,364			954,540			9,795,611			13,760,515
Balance at 31 March 2012		200		14,922,284	*		1,903,845	*		202,256,232	*		219,082,561

* These reserve accounts comprise the consolidated reserves of HK$219,082,361 (2011: HK$214,161,157) in the consolidated statement of financial position.

JV-5

Eyston Company Limited愛斯頓有限公司

Consolidated statement of cash flows
for the year ended 31 March

	2012			2011
	HK$			HK$
Cash flows from operating activities
Profit before income tax		12,263,480			29,349,470
Adjustments for :
Amortisation of advanced lease payments		311,217			446,331
Depreciation of property, plant and equipment		5,791,073			7,838,547
Exchange loss/(gain) on available-for-sale financial assets		35,063			(997,645	)
Loss/(Gain) on disposal of  available-for-sale financial assets		261,300			(479,412	)
Interest expense		35,852			64,783
Interest income		(3,599,945	)		(3,026,578	)
Operating profit before working capital changes		15,098,040			33,195,496
(Increase)/Decrease in amount due from a shareholder		(1,455,761	)		1,733,761
Decrease/(Increase) in inventories		5,032,707			(5,221,143	)
(Increase)/Decrease in trade and other receivables		(1,825,475	)		8,674,731
Increase/(Decrease) in amount due to a related company		259,736			(894,099	)
Decrease in obligations under finance lease		(10,700	)		(21,000	)
(Decrease)/Increase in collateralised bank advances		-			(1,354,556	)
Increase/(Decrease) in trade and other payables		3,766,425			(5,504,623	)
Cash generated from operations		20,864,972			30,608,567
Interest received		2,708,248			3,026,578
Interest paid		(35,852	)		(64,783	)
Dividends paid		(4,419,655	)		(5,420,825	)
Income tax paid		(2,795,109	)		(2,790,289	)
Net cash generated from operating activities		16,322,604			25,359,248
Cash flows from investing activities
Deposit paid for acquisition of property, plant and equipment		(5,605,087	)		-
Purchase of property, plant and equipment		(5,855,219	)		(4,401,344	)
Purchase of available-for-sale financial assets		(4,184,700	)		(40,511,549	)
Proceeds from disposal of available-for-sale financial assets		3,900,000			11,183,373
Net cash used in investing activities		(11,745,006	)		(33,729,520	)
Net increase/(decrease) in cash and cash equivalents		4,577,598			(8,370,272	)
Cash and cash equivalents at beginning of the year		62,947,017			71,317,289
Effect of foreign exchange rate changes, net		892,597			-
Cash and cash equivalents at end of the year		68,417,212			62,947,017

JV-6

Eyston Company Limited愛斯頓有限公司

Notes to the financial statements
for the year ended 31 March 2012

1. GENERAL INFORMATION

The company is a limited liability company incorporated and domiciled in Hong Kong. The address of the company’s registered office and principal place of business is B2, 3/F, Fortune Factory Building, 40 Lee Chung Street, Chai Wan, Hong Kong.

The principal activities of the company and its subsidiaries are manufacturing and trading of consumer electronic products including smoke, fire and carbon monoxide alarms and other home safety products. Details of the company’s subsidiaries are set out in note 15 to the financial statements.

The financial statements on pages 2 to 43 have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the requirements of the Hong Kong Companies Ordinance.

The financial statements for the year ended 31 March 2012 were approved for issue by the board of directors on [date].

2. ADOPTION OF NEW OR AMENDED HKFRSs

2.1 Impact of new or amended HKFRSs which are effective during the year

In the current year, the Group has applied for the first time the following new standards, amendments and interpretations (the “new HKFRSs”) issued by the HKICPA, which are relevant to and effective for the Group’s financial statements for the annual period beginning on 1 April 2011.

HKAS 24 (Revised)	Related Party Disclosures
Various	Annual improvements to HKFRSs 2010

The adoption of these new and amended HKFRSs did not result in significant changes to the Group’s accounting policies and have not resulted in any prior-period adjustments reported results, financial positions and cash flows of the Group. Accordingly, no prior period adjustment is required.

JV-7

Eyston Company Limited愛斯頓有限公司

2. ADOPTION OF NEW OR AMENDED HKFRSs (Continued)

2.2 Impact of new or amended HKFRSs which are issued but not yet effective

At the date of authorisation of these financial statements, certain new and amended HKFRSs have been published but are not yet effective, and have not been adopted early by the Group.

The directors anticipate that all of the pronouncements will be adopted in the Group’s accounting policy for the first period beginning after the effective date of the pronouncement. Information on new and amended HKFRSs that are expected to have impact on the Group’s accounting policies is provided below.

HKFRS 9 Financial Instruments

The standard is effective for accounting periods beginning on or after 1 January 2013.

Under HKFRS 9, all recognised financial assets that are within the scope of the HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at either amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically under HKFRS 9, for all financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss is presented in profit or loss.

The directors are currently assessing the impact of other new and amended HKFRSs upon initial application but are not yet in a position to state whether they would have material financial impact on the Group’s results and financial position.

JV-8

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below. These policies have been consistently applied to all the years presented unless otherwise stated. The adoption of new or amended HKFRSs and the impacts on the group’s financial statement, if any, are disclosed in note 2.

The financial statements have been prepared on the historical cost basis except for financial instruments classified as available-for-sale which are stated at fair values. The measurement bases are fully described in the accounting policies below.

It should be noted that accounting estimates and assumptions are used in preparation of the financial statements. Although these estimates are based on management’s best knowledge and judgment of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

3.2 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the company and its subsidiaries made up to 31 March each year.

Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are excluded from consolidation from the date that control ceases.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the consolidated financial statements. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from the group’s perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group.

JV-9

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.3 Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the group has the power to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.

In consolidated financial statements, acquisition of subsidiaries (other than those under common control) is accounted for by applying the purchase method. This involves the estimation of fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the bases for subsequent measurement in accordance with the group’s accounting policies.

In the company’s statement of financial position, subsidiaries are carried at cost less any impairment loss unless the subsidiary is held for sale or included in a disposal group. The results of the subsidiaries are accounted for by the company on the basis of dividends received and receivable at the reporting date. All dividends whether received out of the investee’s pre or post-acquisition profits are recognized in the company’s profit or loss.

3.4 Property, plant and equipment

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum :

Buildings	5% or where shorter over 16 - 19 years
Leasehold improvements	20	%
Plant and machinery	20	%
Furniture and fixtures	20	%
Motor vehicles	20	%
Computer equipment and software	50	%

Construction in progress represents costs incurred in the construction of buildings. These costs are not depreciated until such time as the relevant assets are completed and put into use, at which time the relevant costs are transferred to the appropriate category of property, plant and equipment.

JV-10

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.4 Property, plant and equipment (Continued)

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

The gain or loss arising on the retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the assets and is recognised in profit or loss.

Subsequent costs are included in the assets’ carrying amounts or recognised as separate assets, as appropriate, only when it is probable that future economic benefits associated with the items will flow to the group and the cost of the items can be measured reliably. All other costs, such as repairs and maintenance, are charged to profit or loss during the period in which they are incurred.

3.5 Leasehold land and land use rights

Upfront payments made to acquire land held under an operating lease are stated at costs less accumulated amortisation and any accumulated impairment losses. The determination if an arrangement is or contains a lease and the lease is an operating lease is detailed in note 3.15. Amortisation is calculated on a straight line basis over the term of the lease/right except where an alternative basis is more representative of the time pattern of benefits to be derived by the group from the use of the land.

3.6 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using first-in, first-out method and, in case of work in progress and finished goods, comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is the estimated selling price in the ordinary course of business less estimated cost of completion and applicable selling expenses.

3.7 Financial assets

The group’s accounting policies for financial assets other than investments in subsidiaries are set out below.

Classification of financial assets

Financial assets other than hedging instruments are classified into the following categories: (i) loans and receivables, and (ii) available-for-sale financial assets.

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

JV-11

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Financial assets (Continued)

Classification of financial assets (Continued)

(ii) Available-for-sale financial assets

Available-for-sale financial assets include non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value. Gain or loss arising from a change in the fair value excluding any dividend and interest income is recognised in other comprehensive income and accumulated separately in the fair value reserve in equity, except for impairment losses and foreign exchange gains and losses on monetary assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity would be recycled to profit or loss. Upon disposal, the cumulative gain or loss previously recognised in equity is transferred to profit or loss.

The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the reporting date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.

Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and, where allowed and appropriate, re-evaluates this designation at every reporting date.

Recognition and derecognition of financial assets

All financial assets are recognised when, any only when, the group becomes a party to the contractual provisions of the instrument. Regular way purchases of financial assets are recognised on trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the financial assets expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset.

JV-12

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Financial assets (Continued)

Impairment of financial assets

At each reporting date, financial assets other than at fair value through profit or loss are reviewed to determine whether there is any objective evidence of impairment.

Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the group about one or more of the following loss events:

- significant financial difficulty of the debtor;

- a breach of contract, such as a default or delinquency in interest or principal payments;

- it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

- significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

- a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash flows from the group of financial assets. Such observable data includes but not limited to adverse changes in the payment status of debtors in the group and, national or local economic conditions that correlate with defaults on the assets in the group.

If any such evidence exists, the impairment loss is measured and recognised as follows:

(i) Loans and receivables

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in profit or loss of the period in which the impairment occurs.

JV-13

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.7 Financial assets (Continued)

Impairment of financial assets (Continued)

(i) Loans and receivables (Continued)

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss of the period in which the reversal occurs.

(ii) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income and accumulated in equity and there is objective evidence that the asset is impaired, an amount is removed from equity and recognised in profit or loss as impairment loss. That amount is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

Reversals in respect of investment in equity instruments classified as available-for-sale are not recognised in profit or loss. The subsequent increase in fair value is recognised in other comprehensive income. Impairment losses in respect of debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss were recognised. Reversal of impairment losses in such circumstances are recognised in profit or loss.

Financial assets other than trade receivables that are stated at amortised cost, impairment losses are written off against the corresponding assets directly. Where the recovery of trade receivables is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded using an allowance account. When the group is satisfied that recovery of trade receivables is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account in respect of that receivable are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

Impairment losses recognised in an interim period in respect of available for sale equity securities are not reversed in a subsequent period. Consequently, if the fair value of an available for sale equity security increases in the reminder of an annual period, or in a subsequent period, the increase is recognised in other comprehensive income.

JV-14

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.8 Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand, demand deposits with bank or financial institutions and short-terms highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value, having been within three months of maturity at acquisition.

3.9 Impairment of non-financial assets

The group’s property, plant and equipment, advanced lease payments and the company’s investments in subsidiaries are subject to impairment testing.

The assets are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risk specific to the asset.

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflow independently (i.e. cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level.

Impairment losses is charged pro rata to the assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.

3.10 Financial liabilities

The group’s financial liabilities include trade and other payables, amounts due to group and related companies and borrowings.

Financial liabilities are recognised when the group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in profit or loss.

JV-15

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.10 Financial liabilities (Continued)

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in profit or loss.

Finance lease liabilities

Finance lease liabilities are measured at initial value less the capital element of lease repayments (see note 3.15).

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

Trade and other payables

Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.

3.11 Employee benefits

Retirement benefits costs

The company operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. The MPF Scheme became effective on 1 December 2000. Contributions are made based on a percentage of the employees’ basic salaries, limited to a maximum of HK$1,000 per month, and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the company in an independently administered fund. The company’s employer contributions vest fully with the employees when contributed into the MPF Scheme. The employees of the group’s subsidiary which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiary is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

JV-16

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.11 Employee benefits (Continued)

Short-term employee benefits

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the reporting date. Non-accumulating compensated absences such as sick leave and maternity leave are not recognised until the time of leave.

3.12 Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

Any transaction costs associated with the issuing of shares are deducted from equity (net of any related income tax benefits) to the extent they are incremental cost directly attributable to the equity transaction.

3.13 Foreign currency translation

The consolidated financial statements are presented in Hong Kong Dollars (HK$), which is also the functional currency of the company.

In the individual financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities are recognised in profit or loss.

Non-monetary items are carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

In the consolidated financial statements, all individual financial statements of foreign operations, originally presented in a currency different from the group’s presentation currency, have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the reporting date. Income and expenses have been converted into Hong Kong dollars at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period, provided that the exchange rates do not fluctuate significantly. Any differences arising from this procedure have been recognized in other comprehensive income and accumulated separately in the translation reserve in equity.

When a foreign operation is sold, such exchange differences are reclassified from equity to profit or loss as part of the gain or loss on the sale.

JV-17

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.14 Accounting for income taxes

Income tax comprises current tax and deferred tax.

Current income tax assets and/or liabilities comprise those obligations to, or claims from, tax authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of income tax expense in profit or loss.

Deferred tax is calculated using the liability method on temporary differences at the reporting date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit, including existing taxable temporary differences, will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the reporting date.

Changes in deferred tax assets or liabilities are recognised in profit or loss, or in other comprehensive income or directly in equity if they relate to items that are charged or credited to other comprehensive income or directly in equity.

3.15 Leases

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the group

Assets that are held by the group under leases which transfer to the group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the group are classified as operating leases.

JV-18

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.15 Leases (Continued)

(ii) Assets acquired under finance leases

Where the group acquires the use of assets under finance leases, the amounts representing the fair value of the leased assets, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligation under finance leases.

Subsequent accounting for assets held under finance lease agreements corresponds to those applied to comparable acquired assets. The corresponding finance lease liability is reduced by lease payments less finance charges.

Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

(iii) Operating lease charges as the lessee

Where the group has the right to use of assets held under operating leases, payments made under the leases are charged to profit or loss on a straight-line basis over the lease terms except where an alternative basis is more representative of the time pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rental are charged to profit or loss in the accounting period in which they are incurred.

3.16 Revenue recognition

Revenue comprises the fair value of the consideration received or receivables for the sale of goods, rendering of services and the use by others of the group’s assets yielding interest, net of rebates and discounts. Provided it is probable that the economic benefits will flow to the group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows :

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to customers. This is usually taken as the time when the goods are delivered and the customer has accepted the goods.

Rental income from properties letting under operating leases is recognised on a straight line basis over the lease terms.

Interest income is recognised on a time proportion basis using the effective interest rate method.

JV-19

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.17 Related parties

(a) For the purposes of these financial statements, a person or a close member of that person’s family is related to the group if that person:

(i) has control or joint control over the group;

(ii) has significant influence over the group; or

(iii) is a member of the key management personnel of the group or of a parent of the group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(b) For the purposes of these financial statements, an entity is related to the group if any of the following conditions applies:

(i) the entity and the group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

(ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);

(iii) both entities are joint ventures of the same third party;

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of employees of either the group or an entity related to the group;

(vi) the entity is controlled or jointly controlled by a person identified in (a); or

(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

JV-20

Eyston Company Limited愛斯頓有限公司

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.18 Provisions and contingent liabilities

Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

Contingent liabilities are recognised in the course of the allocation of purchase price to the assets and liabilities acquired in a business combination. They are initially measured at fair value at the date of acquisition unless the fair value cannot be measured reliably, and subsequently measured at the higher of the amount that would be recognised in a comparable provision as described above and the amount initially recognised less any accumulated amortisation, if appropriate.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Depreciation and amortisation

The group and company depreciates the property, plant and equipment on a straight-line basis over the estimated useful lives, starting from the date on which the assets are placed into productive use. The estimated useful lives reflect the directors’ estimate of the periods that the group intends to derive future economic benefits from the use of the group’s and company’s property, plant and equipment.

JV-21

Eyston Company Limited愛斯頓有限公司

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

Impairment of receivables

The policy for the impairment of receivables of the group is based on the evaluation of collectibility and ageing analysis of accounts and on the management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor.

Net realisable value of inventories

Net realisable value of inventories is the actual or estimated selling price in the ordinary course of business, less further costs of completion and the estimated costs necessary to make the sale. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to changes in market condition. Management reassesses these estimations at each reporting date.

Current taxation and deferred taxation

The group is subject to income taxes in Hong Kong and the People’s Republic of China (“PRC”). Significant judgement is required in determining the amount of the provision of taxation and the timing of payment of the related taxations. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

5. TURNOVER

Revenue, which is also the group’s turnover, represents total invoiced value of goods supplied, less discounts and returns.

6. OTHER INCOME

	2012		2011
	HK$		HK$
Exchange gain		-		1,266,058
Gain on disposal of available-for-sale financial assets		-		479,412
Interest income		3,599,945		3,026,577
Rental income, less outgoings		-		101,894
Sundry income		844,425		985,036
		4,444,370		5,858,977

7. FINANCE COSTS

	2012		2011
	HK$		HK$
Interest charges on :
- Discounted bills		35,852		64,783

JV-22

Eyston Company Limited愛斯頓有限公司

8. PROFIT BEFORE INCOME TAX

	2012		2011
	HK$		HK$
Profit before income tax is arrived at after charging/(crediting):
Amortisation of advanced lease payments		311,217		446,331
Auditors’ remuneration		335,714		335,287
Cost of inventories recognised as expenses		133,399,699		138,271,637
Depreciation of property, plant and equipment		5,791,073		7,838,547
Exchange loss/(gain), net		1,093,535		(1,266,058	)
Loss/(gain) on disposal of  available-for-sale financial assets		261,300		(479,412	)
Operating lease charges in respect of land and buildings		3,397,354		3,275,539
Retirement benefits scheme contributions		3,969,353		3,594,048
Staff costs (excluding retirement benefits scheme contributions)		30,573,396		26,472,846

9. INCOME TAX EXPENSE

	2012			2011
	HK$			HK$
The tax charge comprises :
Hong Kong profits tax
- current year		2,409,865			3,132,309
- over provision in prior years		(13,628	)		(115,200	)
PRC Enterprise Income Tax
- current year		28,783			60,076
		2,425,020			3,077,185
Deferred tax (Note 24)
- current year		42,849			(183,972	)
Total income tax expense		2,467,869			2,893,213

Hong Kong profits tax has been provided at the rate of 16.5% (2011: 16.5%) on the group’s estimated assessable profits arising in Hong Kong for the year.

The PRC enterprise income tax (“EIT”) is computed according to the relevant laws and regulations in the PRC. The applicable income tax rate was 25% for the year (2011: 25%).

JV-23

Eyston Company Limited愛斯頓有限公司

9. INCOME TAX EXPENSE (Continued)

Reconciliation between tax expense and accounting profit at applicable tax rates :

	2012			2011
	HK$			HK$
Profit before income tax		12,263,480			29,349,470
Tax on profit before income tax, calculated at the rates applicable to profits in the tax jurisdictions concerned		457,621			4,205,450
Tax effect of non-deductible expenses		353,601			165,321
Tax effect of non-taxable revenue		(2,953,153	)		(3,898,867	)
Tax effect on temporary differences not recognised		359,380			589,302
Tax effect on unrecognised tax losses		4,168,465			1,947,207
Overprovision in prior years		(13,628	)		(115,200	)
Others		95,583			-
Income tax expense		2,467,869			2,893,213

10. PROFIT ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

Of the consolidated profit attributable to the owners of the company of HK$9,795,611 and HK$26,456,257 in 2012 and 2011 respectively, HK$28,332,203 and HK$36,755,589 in 2012 and 2011 respectively have been dealt with in the financial statements of the company.

11. DIVIDENDS

	2012		2011
	HK$		HK$
Dividends attributable to the year :
First interim dividend of HK$1,714,438 (2011: HK$521,198) per share		3,428,876		1,042,396
Second interim dividend of HK$1,307,657 (2011: HK$1,614,646) per share		2,615,314		3,229,293
Third interim dividend of HK$244,524 (2011: HK$1,559,521) per share		489,049		3,119,042
Fourth interim dividend of HK$1,153,036 (2011:HK$1,725,458) per share		2,306,072		3,450,918
		8,839,311		10,841,649

JV-24

Eyston Company Limited愛斯頓有限公司

12. PROPERTY, PLANT AND EQUIPMENT

Group

	Buildings			Leasehold improvements			Construction in progress			Plant and machinery			Furniture and fixtures			Motor vehicles			Computer equipment and software			Total
	HK$			HK$			HK$			HK$			HK$			HK$			HK$			HK$
At 31 March 2010
Cost		42,915,495			10,813,762			17,398,823			57,739,240			5,485,134			7,078,655			2,253,754			143,684,863
Accumulated depreciation		(18,378,927	)		(10,476,034	)		-			(40,580,752	)		(5,327,352	)		(6,155,561	)		(2,212,929	)		(83,131,555	)
Net book amount		24,536,568			337,728			17,398,823			17,158,488			157,782			923,094			40,825			60,553,308
Year ended 31 March 2011
Opening net book amount		24,536,568			337,728			17,398,823			17,158,488			157,782			923,094			40,825			60,553,308
Additions		-			-			3,494,277			51,506			19,793			1,099,907			17,240			4,682,723
Depreciation		(2,392,951	)		(176,150	)		-			(4,475,422	)		(169,723	)		(599,834	)		(24,467	)		(7,838,547	)
Reclassifications		-			-			(737,395	)		-			737,395			-			-			-
Closing net book amount		22,143,617			161,578			20,155,705			12,734,572			745,247			1,423,167			33,598			57,397,484
At 31 March 2011
Cost		40,085,764			10,813,762			20,155,705			57,790,746			6,237,642			7,973,932			2,251,318			145,308,869
Accumulated depreciation		(17,942,147	)		(10,652,184	)		-			(45,056,174	)		(5,492,395	)		(6,550,765	)		(2,217,720	)		(87,911,385	)
Net book amount		22,143,617			161,578			20,155,705			12,734,572			745,247			1,423,167			33,598			57,397,484
Year ended 31 March 2012
Opening net book amount		22,143,617			161,578			20,155,705			12,734,572			745,247			1,423,167			33,598			57,397,484
Additions								2,708,463			1,392,687			382,651			1,358,800			12,618			5,855,219
Depreciation		(554,169	)		(84,773	)					(4,266,023	)		(296,184	)		(565,127	)		(24,797	)		(5,791,073	)
Reclassifications Exchange difference		266,490			-			715,857			562,329			38,930			57,420			3,057			1,644,083
Closing net book amount		21,855,938			76,805			23,580,025			10,423,565			870,644			2,274,260			24,476			59,105,713
At 31 March 2012
Cost		40,510,414			10,813,762			23,580,025			60,206,886			6,628,901			9,501,779			2,273,976			153,515,743
Accumulated depreciation		(18,654,476	)		(10,736,957	)		-			(49,783,321	)		(5,758,257	)		(7,227,519	)		(2,249,500	)		(94,410,030	)
Net book amount		21,855,938			76,805			23,580,025			10,423,565			870,644			2,274,260			24,476			59,105,713

JV-25

Eyston Company Limited愛斯頓有限公司

12. PROPERTY, PLANT AND EQUIPMENT (Continued)

Company

	Buildings			Leasehold improvements			Plant and machinery			Furniture and fixtures			Motor vehicles			Computer equipment and software			Total
At 31 March 2010
Cost		2,829,732			2,782,291			13,685,413			1,640,870			2,129,615			1,340,756			24,408,677
Accumulated depreciation		(2,655,182	)		(2,444,562	)		(9,879,616	)		(1,586,667	)		(1,959,682	)		(1,340,756	)		(19,866,465	)
Net book amount		174,550			337,729			3,805,797			54,203			169,933			-			4,542,212
Year ended 31 March 2011
Opening net book amount		174,550			337,729			3,805,797			54,203			169,933			-			4,542,212
Additions		-			-			38,000			-			-			-			38,000
Depreciation		(174,550	)		(176,150	)		(2,243,064	)		(34,988	)		(37,075	)		-			(2,665,827	)
Closing net book amount		-			161,579			1,600,733			19,215			132,858			-			1,914,385
At 31 March 2011
Cost		-			2,782,291			13,723,413			1,636,190			1,924,985			1,321,080			21,387,959
Accumulated depreciation		-			(2,620,712	)		(12,122,680	)		(1,616,975	)		(1,792,127	)		(1,321,080	)		(19,473,574	)
Net book amount		-			161,579			1,600,733			19,215			132,858			-			1,914,385
Year ended 31 March 2012
Opening net book amount		-			161,579			1,600,733			19,215			132,858			-			1,914,385
Additions		-			-			703,068			-			1,358,800			-			2,061,868
Depreciation		-			(84,773	)		(1,393,175	)		(19,185	)		(59,723	)		-			(1,556,856	)
Closing net book amount		-			76,806			910,626			30			1,431,935			-			2,419,397
At 31 March 2012
Cost		-			2,782,291			14,426,481			1,636,190			3,283,785			1,321,080			23,449,827
Accumulated depreciation		-			(2,705,485	)		(13,515,855	)		(1,636,160	)		(1,851,850	)		(1,321,080	)		(21,030,430	)
Net book amount		-			76,806			910,626			30			1,431,935			-			2,419,397

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Eyston Company Limited愛斯頓有限公司

13. ADVANCED LEASE PAYMENTS

The group’s advanced lease payments represent up-front payments to acquire long term interests in the usage of land held in Mainland China on leases of between 10 to 50 years.

	Group
	2012		2011
	HK$		HK$
Advanced lease payments, net		13,511,129		13,345,713

14. AVAILABLE-FOR-SALE FINANCIAL ASSETS

	Group						Company
	2012			2011			2012			2011
	HK$			HK$			HK$			HK$
Available-for-sale financial assets :
Listed outside Hong Kong, at market value		67,684,240			66,741,363			67,684,240			66,741,363
Less: Portion included in current assets		(2,738,120	)		(4,033,575	)		(2,738,120	)		(4,033,575	)
Portion included in non-current assets		64,946,120			62,707,788			64,946,120			62,707,788

15. INTERESTS IN SUBSIDIARIES

Company

	2012			2011
	HK$			HK$
Unlisted shares, at cost		156,157,816			140,820,975
Less : Impairment		(200,000	)		(200,000	)
		155,957,816			140,620,975

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Eyston Company Limited愛斯頓有限公司

15. INTERESTS IN SUBSIDIARIES (Continued)

Details of the subsidiaries as at 31 March 2012 are as follows :

Name	Place of incorporation/ establishment		Nominal value of  issued capital/ registered capital	Percentage of issued capital held by the company directly		Principal activities
Fujian Taisun Electronics Technologies Co., Ltd.	The PRC	US$	15,000,000	100	%	Manufacture of consumer electronic products
Fujian Taisun Fire Safety Technologies Co., Ltd.	The PRC	US$	5,000,000	100	%	Manufacture of consumer electronic products (not yet commence operations)
Sound Well (Hong Kong) Co. Limited	Hong Kong	HK$	200,000	100	%	Trading of consumer electronic products and investment holding
Kimbager International Limited	British Virgin Islands	US$	1	100	%	Trading of machinery and equipment
Kimbager Limited	Hong Kong	HK$	10,000	100	%	Dormant

16. INVENTORIES

	Group				Company
	2012		2011		2012		2011
	HK$		HK$		HK$		HK$
Raw materials		19,662,745		27,237,008		19,662,745		27,237,008
Work in progress		4,719,390		2,901,834		4,719,390		2,901,834
Finished goods		5,931,005		5,207,005		5,931,005		5,207,005
		30,313,140		35,345,847		30,313,140		35,345,847

17. TRADE AND OTHER RECEIVABLES

	Group
	2012		2011
	HK$		HK$
Accounts receivable		3,223,698		1,814,692
Deposits, prepayments and other receivables		8,848,266		1,919,827
		12,071,964		3,734,519

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Eyston Company Limited愛斯頓有限公司

17. TRADE AND OTHER RECEIVABLES (Continued)

Ageing analysis of trade receivables that are past due but not impaired is as follows:

	Group
	2012		2011
	HK$		HK$
Neither past due nor impaired		76,822		-
0 – 30 days past due		3,146,876		1,814,692
		3,223,698		1,814,692

At each of the reporting dates, the group’s trade receivables were individually determined to be impaired. Trade receivables that were past due but not impaired relate to a number of independent customers that had a good track record with the group. Based on past experience, the management believe that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The group does not hold any collateral or other credit enhancements over these balances.

18. AMOUNTS DUE FROM/(TO) SUBSIDIARIES

Company

	2012			2011
	HK$			HK$
.Trade *		7,017,686			7,472,261
Non-trade **		13,149,826			13,847,542
		20,167,512			21,319,803
Less : Provision for impairment		(1,636,991	)		(1,636,991	)
		18,530,521			19,682,812

* The amount is unsecured and arises from trading activities of which the settlement period is in accordance with normal commercial terms.

** The amount is unsecured, interest-free and repayable on demand.

Amount due to a subsidiary is unsecured, interest-free and repayable on demand.

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Eyston Company Limited愛斯頓有限公司

19. CASH AND CASH EQUIVALENTS

	Group						Company
	2012			2011			2012			2011
	HK$			HK$			HK$			HK$
Bank and cash balances		68,417,212			62,947,017			33,989,265			24,078,565
Long-term deposit		569,775			569,775			569,775			569,775
		68,986,987			63,516,792			34,559,040			24,648,340
Less: Long-term pledged deposit-guarantee for electricity supply		(569,775	)		(569,775	)		(569,775	)		(569,775	)
		68,417,212			62,947,017			33,989,265			24,078,565

The effective interest rate of long-term deposit of the group was 1.71%. The long-term deposit was denominated in Renminbi (“RMB”) and deposited with bank in Mainland China as at 31 March 2012 and 2011 to guarantee for the electricity supply of its manufacturing plant.

Deposits with banks earn interest at floating rates based on daily bank deposit rates.

At 31 March 2012, the group had cash and cash equivalents denominated in RMB amounting to approximately HK$17,312,690 (2011: HK$13,464,278), representing deposits placed with banks in Mainland China.

Renminbi is not freely convertible into foreign currencies. Under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the group is permitted to exchange RMB for foreign currencies through banks which are authorised to conduct foreign exchange business.

20. AMOUNT DUE FROM/(TO) A SHAREHOLDER / A RELATED COMPANY

The amount is unsecured, interest-free and repayable on demand.

21. LOANS FROM SHAREHOLDERS

The loans are unsecured, interest-free and repayable on demand by the respective shareholders with the consent of each other and upon successful initial listing of the company’s shares on the Main Board of HKEX, whichever is earlier.

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Eyston Company Limited愛斯頓有限公司

22. DEFERRED TAX

At 31 March 2012, the major deferred tax liabilities recognised in the statement of financial position and the movements during the current and prior years:

Group and Company

	Accelerated tax depreciation
	HK$
Balance at 1 April 2010		187,816
Recognised in profit or loss (Note 9)		(183,972	)
Balance at 31 March 2011		3,844
Recognised in profit or loss (Note 9)		42,849
Balance at 31 March 2012		46,693

	2012		2011
	HK$		HK$
Deferred tax liabilities recognised in the statement of financial position of the group and company		46,693		3,844

At the reporting date, the major components of the deferred tax asset that has not been recognised is the temporary differences in respect of the tax loss and pre-operating expenses incurred by Fujian Taisun Electronics Technologies Co., Ltd. and Fujian Taisun Fire Safety Technologies Co., Ltd, the PRC subsidiaries of the company, of approximately HK$16,281,869 (2011: HK$12,000,410) and HK$1,389,791 (2011: HK$1,000,469), respectively, as it is not certain that future taxable profits will be available against which these deductible temporary difference may be utilised.

23. SHARE CAPITAL

	2012		2011
	HK$		HK$
Authorised :
100 ordinary shares of HK$100 each		10,000		10,000
Issued and fully paid :
2 ordinary shares of HK$100 each		200		200

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Eyston Company Limited愛斯頓有限公司

24. RESERVES

The amounts of the group’s reserves and the movements therein for the current and prior years are presented in consolidated statement of changes in equity on page 5 of the financial statements.

Company

	Retained profits			Fair value reserve		Total
	HK$			HK$		HK$
Balance at 1 April 2010		245,772,792			922,382		246,695,174
Profit for the year		36,755,589			-		36,755,589
Change in fair value of available-for-sale financial assets		-			26,926		26,926
Dividends declared		(10,841,649	)		-		(10,841,649	)
Balance at 31 March 2011 and 1 April 2011		271,686,732			949,308		272,636,040
Profit for the year		28,332,203			-		28,332,203
Change in fair value of available-for-sale financial assets		-			954,537		954,537
Dividends declared		(8,839,311	)		-		(8,839,311	)
Balance at 31 March 2012		291,179,624			1,903,845		293,083,469

25. OPERATING LEASE ARRANGEMENTS

At 31 March 2012, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable as follows:

	Group				Company
	2012		2011		2012		2011
	HK$		HK$		HK$		HK$
Within one year		432,600		1,359,600		161,000		966,000
In the second to fifth years		-		432,600		-		161,000
		432,600		1,792,200		161,000		1,127,000

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Eyston Company Limited愛斯頓有限公司

25. OPERATING LEASE ARRANGEMENTS (Continued)

The group and the company lease land and buildings under operating leases. The leases run for an initial period of one to five years, with an option to renew the leases at the expiry dates. None of the leases includes contingent rentals.

26. CAPITAL COMMITMENTS

	Group				Company
	2012		2011		2012		2011
	HK$		HK$		HK$		HK$
Contracted but not provided for the construction of the factory premises in the PRC		4,415,608		4,088,884		-		-
Capital contributions payable to PRC wholly-owned subsidiaries		-		-		52,192		15,389,033
		4,415,608		4,088,884		52,192		15,389,033

27. CONTINGENT LIABILITIES

The current and prior years’ tax provisions have been prepared on the basis that the management fees and bonuses are deductible in the determination of the assessable profits of the company and the company is entitled to the offshore claims. During the year ended 31 March 2006, the company received enquiries from the Hong Kong Inland Revenue Department regarding these deductions and offshore claims. As at the date of approval of these financial statements, the outcome of the enquiries is uncertain. In the opinion of the directors, no provision for additional taxes is required. The total contingent tax exposures to the group and company in respect of the deductions and offshore claims are estimated to be approximately HK$6.5 million and HK$32.8 million, respectively.

The group is required to make contribution of social security insurance according to the relevant laws and regulations for their employees/workers in Mainland China. However the group had not been requested by the relevant authorities to make such contributions fully in the past. The group has made a provision for the underpaid contributions for the recent years based on the directors’ estimation and the aggregate provision at the reporting date is HK$10.9 million. The directors consider that the likelihood of the group to incur further loss in relation to this matter is remote. The group is not currently aware of any investigations or other circumstances that would indicate that the group will be required to pay up any of the social insurance underpayment.

Except as disclosed above, the group and company have no contingent liabilities at 31 March 2012.

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Eyston Company Limited愛斯頓有限公司

28. DIRECTORS’ REMUNERATION

Remuneration of the directors of the company disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows:

	Group				Company
	2012		2011		2012		2011
	HK$		HK$		HK$		HK$
Fees		-		-		-		-
Other emoluments		-		-		-		-

29. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the financial statements, during the year, the group had the following transactions with related parties:

		Group
		2012		2011
	Note	HK$		HK$
Transactions with a related company	(i)
Rental expense			2,987,104		2,907,339
Management fee expense			4,434,600		4,434,600
Management bonus expense			259,736		1,867,192
Transactions with a shareholder
Sales			79,710,981		61,810,535
Purchases			11,721,328		10,172,442
Sales commission expense			1,495,624		1,836,333

Note:

(i) The group entered into those transactions with Taisun Magnetics Limited, in which Mr. Lam Wai Shuen, Shiman and Dr. Lam Wai Wing, Malcolm, directors of the company, had interests.

30. MAJOR NON-CASH TRANSACTION

During the year ended 31 March 2012, HK$4,419,656 (2011: HK$5,420,824) of the dividends for the year was settled through the current account with a shareholder. In addition, no reversal of dividend payable was made against retained earnings (2011: nil).

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The group is exposed to financial risks through its use of financial instruments in its ordinary course of operations and in its investment activities. The financial risks include market risk (including currency risk, interest risk and other price risk), credit risk and liquidity risk.

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Financial risk management is co-ordinated at the group’s headquarters, in close co-operation with the Board of Directors. The overall objectives in managing financial risks focus on securing the group’s short to medium term cash flows by minimising its exposure to financial markets. Long term financial investments are managed to generate lasting returns with acceptable risk levels.

It is not the group’s policy to actively engage in the trading of financial instruments for speculative purposes. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

31.1 Interest rate risk

Interest rate risk related to the risk that the fair value or cash flow of a financial instrument will fluctuate because of changes in market interest rates. The group’s exposure to interest rate risk mainly arises on cash and cash equivalents. The interest rates of cash and cash equivalent of the group are disclosed in note 19. The group has not used any derivative contracts to hedge its exposure to interest rate risk or formulated a policy to manage the interest rate risk. However, the directors monitor interest rate change exposure and will consider hedging significant interest rate exchange exposure should the need arises.

The policies to manage interest rate risk have been followed by the group since prior year are considered to be effective.

At 31 March 2012, the group was exposed to changes in market interest rates through cash and cash equivalent, which are subject to variable interest rates. The following table illustrates the sensitivity of the profit after tax for the year and retained earnings to a change in interest rates of +1% and -1% (2011: +1% and -1%), with effect from the beginning of the year. The calculations are based on the group’s and the company’s bank balance held at each reporting date. All other variables are held constant.

	Group						Company
	2012			2011			2012			2011
	HK$			HK$			HK$			HK$
If interest rates were 1% (2011: 1%) higher
Net profit for the year		689,870			635,168			345,590			246,483
If interest rates were 1% (2011: 1%) lower
Net profit for the year		(689,870	)		(635,168	)		(345,590	)		(246,483	)

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.2 Price risk

Price risk related to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than changes in interest rates and foreign exchange rates). The group is exposed to change in market prices in respect of its investment in listed securities which are classified as available-for-sale financial assets.

To manage its market price risk arising from these investments, the group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Board of Directors.

The policies to manage other price risk have been followed by the group since prior years and are considered to be effective.

At 31 March 2012, if securities prices had increased/decreased by 1% and all other variables were held constant, fair value reserve would increase/decrease by approximately HK$676,842 (2011: fair value reserve would increase/decrease by approximately HK$667,413). This is mainly due to the changes in available-for-sale financial assets. This sensitivity analysis has been determined assuming that the price change had occurred at the reporting date and had been applied to the group’s investment on that date.

The assumed volatilities of listed securities represent management’s assessment of a reasonably possible change in these security prices over the next twelve month period.

31.3 Foreign currency risk

Currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The group mainly operates in the Asia Pacific Region and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, RMB, Australian dollar (AUD), Pound sterling (GBP) and Euro (EUR). The HK dollar is pegged to the US dollar at an exchange rate of approximately 7.8, the foreign exchange exposure between US dollar and HK dollar is therefore minimal. The group’s exposure to RMB is minimal as majority of the subsidiaries of the group operates in the PRC with most of the transactions denominated and settled in Renminbi. The group also holds foreign currency time deposits which are exposed to foreign currency risk. To mitigate the group’s exposure to foreign currency risk, the group manages its foreign exchange risk by actively monitoring its foreign currency translations.

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.3 Foreign currency risk (Continued)

The policies to manage foreign currency risk have been followed by the group since prior years and are considered to be effective.

(a) Exposure to currency risk

The following table details the group’s and the company’s exposure at the reporting date to currency risk arising from recognised assets or liabilities denominated in a currency other than the group’s functional currency.

	2012		2011
	HK$		HK$
Group and Company
Net financial assets
AUD		10,534,254		9,804,412
GBP		7,846,087		7,440,911
EUR		646,219		601,530

(b) Sensitivity analysis

The sensitivity analysis has been determined assuming that the reasonably possible change in foreign exchange rates had occurred at the reporting date and had been applied to the group’s exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant. The stated changes represent management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual reporting date. A 1% strengthening/ (weakening) of HK$ against AUD, GBP and EUR at the reporting date would increase/ (decrease) the group’s and the company’s profit after tax and retained profits by the amount shown below. Other components of equity would not be affected by changes in the foreign exchange rates.

	2012				2011
	Changes in foreign exchange rates		Effect on profit after tax and retained profits		Changes in foreign exchange rates		Effect on profit after tax and retained profits
			HK$				HK$
Group and Company
AUD		+1%/-1%		105,343/(105,343)		+1%/-1%		98,044/(98,044)
GBP		+1%/-1%		78,461/(78,461)		+1%/-1%		74,409/(74,409)
EUR		+1%/-1%		6,462/(6,462)		+1%/-1%		6,015/(6,015)

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.4       Credit risks

Credit risk arises from the possibility that the counterparty to a transaction is unwilling or unable to fulfill its obligation with the results that the group thereby suffers financial loss. The group’s exposure to credit risk mainly arises from granting credit to customers in the ordinary course of its operations and from its investing activities. The carrying amounts of trade and other receivables, amount due from a shareholder, available-for-sale financial assets and cash and cash equivalents included in the consolidated statement of financial position represent the group’s maximum exposure to credit risk in relation to financial assets. No other financial assets carry a significant exposure to credit risk. The group monitors the trade and other receivables on an ongoing basis and only trades with creditworthy third parties. In addition, all the group’s cash and cash equivalents are deposited with major banks located in Hong Kong and the PRC. The group adopts conservative investment strategies. For investments in debt securities, only issuers with credit rating of A- or above from Standard & Poor’s would be considered. Trading accounts are only opened with reputable security brokers. No margin trading is allowed. Accordingly, the group has no significant concentrations of credit risk.

The credit and investment policies have been followed by the group since prior years and are considered to have been effective in limiting the group’s exposure to credit risk to a desirable level.

See note 14 and 17 to these financial statements for further details of the group’s exposures to credit risk on available-for-sale financial assets and trade and other receivables respectively.

31.5       Fair values

The carrying amounts of the following financial assets and financial liabilities approximate their fair value as all of them are in short-term nature: cash and cash equivalents, trade and other receivables, trade and other payables, amount due from/to a shareholder/a related party, collateralised bank advances and financing obligations.

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.5       Fair values (Continued)

The following table presents financial assets and liabilities measured at fair value in the statements of financial position in accordance with the fair value hierarchy. The hierarchy groups financial assets and liabilities into three levels based on the relative reliability of significant inputs used in measuring the fair value of these financial assets and liabilities. The fair value hierarchy has the following levels:

- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;

- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3: inputs for the assets or liability that are not based on observable market data (unobservable inputs).

The level in the fair value hierarchy within which the financial asset or liability is categorised in its entirety is based on the lowest level of input that is significant to the fair value measurement.

The financial assets and liabilities measured at fair value in the statements of financial position are grouped into the fair value hierarchy as follows:

Group and Company	2012		2011
	Level 1		Level 1
	HK$		HK$
Assets
Available-for-sale financial assets		67,684,240		66,741,363

The group does not have any financial instruments categorised as Level 2 or Level 3 and there have been no significant transfers between levels 1 and 2 in the reporting periods.

The methods used for the purpose of measuring fair value are unchanged compared to the previous reporting periods. The available-for-sale financial assets are denominated in US dollar, AUD and GBP. Fair values have been determined by reference to their quoted bid prices at the reporting date and have been translated using the spot foreign currency rates at the end of the reporting period where appropriate.

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.6       Liquidity risks

Liquidity risk relates to the risk that the group will not be able to meet its obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The group is exposed to liquidity risk in respect of settlement of trade and other payables, amount due to a related party, collateralised bank advances and its financing obligations, and also in respect of its cash flow management. The group’s objective is to maintain an appropriate level of liquid assets and committed lines of funding to meet its liquidity requirements in the short and longer term.

As at 31 March 2012, the group had net current assets of HK$80,996,517 (2011: HK$80,144,441) and net assets of HK$219,082,561 (2011: HK$214,161,157). The management considered the liquidity risk to be minimal.

The group manages its liquidity needs by carefully monitoring expected payments for potential investments as well as cash-outflows due in day-to-day business. Liquidity needs are monitored on a day-to-day basis. Long-term liquidity needs for a 360-day lookout period are identified on a monthly basis.

The group maintains mainly cash to meet its liquidity requirements for up to 30-day periods, funding for long-term liquidity needs will be considered when there is any potential investment identified.

The liquidity policies have been followed by the group since prior years and are considered to have been effective in managing liquidity risks.

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Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.6       Liquidity risks (Continued)

The following table details the remaining contractual maturities at the reporting dates of the group’s and the company’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payment computed using contractual rate or, if floating, based on rates current at the reporting date) and the earliest date the group and the company can be required to pay:

Group

	On demand or within 1 year		Total contractual undiscounted cash flow		Carrying amount
	HK$		HK$		HK$
At 31 March 2012
Trade and other payables		26,158,587		26,158,587		26,158,587
Obligations under finance lease		-		-		-
Amount due to a related company		2,126,928		2,126,928		2,126,928
Loans from shareholders		2,868,954		2,868,954		2,868,954
		31,154,469		31,154,469		31,154,469
At 31 March 2011
Trade and other payables		22,382,706		22,382,706		22,382,706
Obligations under finance lease		10,700		10,700		10,700
Amount due to a related company		1,867,192		1,867,192		1,867,192
Loans from shareholders		2,868,954		2,868,954		2,868,954
		27,129,552		27,129,552		27,129,552

Company

	On demand or within 1 year		Total contractual undiscounted cash flow		Carrying amount
	HK$		HK$		HK$
At 31 March 2012
Trade and other payables		12,676,555		12,676,555		12,676,555
Obligations under finance lease		-		-		-
Amount due to a subsidiary		240,805		240,805		240,805
Amount due to a related company		2,126,928		2,126,928		2,126,928
Loans from shareholders		2,868,954		2,868,954		2,868,954
		17,913,242		17,913,242		17,913,242
At 31 March 2011
Trade and other payables		11,188,719		11,188,719		11,188,719
Obligations under finance lease		10,700		10,700		10,700
Amount due to a subsidiary		1,349,006		1,349,006		1,349,006
Amount due to a related company		1,867,192		1,867,192		1,867,192
Loans from shareholders		2,868,954		2,868,954		2,868,954
		17,284,571		17,284,571		17,284,571

JV-41

Eyston Company Limited愛斯頓有限公司

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

31.7       Summary of financial assets and liabilities by category

The carrying amounts presented in the statements of financial position relate to the following categories of financial assets and financial liabilities:

	Group				Company
	2012		2011		2012		2011
	HK$		HK$		HK$		HK$
Financial assets
Pledged bank balances		569,775		569,775		569,775		569,775
Available-for-sale financial assets		67,684,240		66,741,363		67,684,240		66,741,363
Loans and receivables:
Trade and other receivables		12,071,964		3,734,519		1,651,021		1,405,909
Amount due from a shareholder		1,003,858		3,967,752		-		-
Amounts due from subsidiaries		-		-		18,530,521		19,682,812
Cash and cash equivalents		68,417,212		62,947,017		33,989,265		24,078,565
		149,747,049		137,960,426		122,424,822		112,478,424
Financial liabilities
Financial liabilities measured at amortised cost:
Trade and other payables		26,158,587		22,382,706		12,676,555		11,188,719
Obligations under finance lease		-		10,700		-		10,700
Amount due to a related company		2,126,928		1,867,192		2,126,928		1,867,192
Amount due to a subsidiary		-		-		240,805		1,349,006
Loans from shareholders		2,868,954		2,868,954		2,868,954		2,868,954
		31,154,469		27,129,552		17,913,242		17,284,571

32. CAPITAL MANAGEMENT POLICIES AND PROCEDURES

The group’s objectives when managing capital are:

(a) To safeguard the group’s ability to continue as a going concern, so that it continues to provide returns and benefits for its stakeholders;

(b) To support the group’s stability and growth; and

(c) To provide capital for the purpose of strengthening the group’s risk management capability.

JV-42

Eyston Company Limited愛斯頓有限公司

32. CAPITAL MANAGEMENT POLICIES AND PROCEDURES (Continued)

The group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. To maintain or adjust the capital structure, the group may adjust the dividend payables to shareholders, issue new shares or raise and repay debts. The group’s capital management objectives, policies or processes were unchanged during the year ended 31 March 2012 and 31 March 2011. Management regards total equity of HK$219,082,361 (2011: HK$214,161,157) as capital for capital management purpose.

33. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with current year’s presentation.

JV-43

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INVESTMENT IN THE HONG KONG JOINT VENTURE

12 Months Ended

Mar. 31, 2012

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments Disclosure [Text Block]

NOTE C - INVESTMENT IN THE HONG KONG JOINT VENTURE

The Company holds a 50% interest in a Joint Venture with a Hong Kong Corporation, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of consumer electronic products. As of March 31, 2012, the Company has an investment balance of $13,083,493 for its 50% interest in the Hong Kong Joint Venture. There are no material differences between the generally accepted accounting principles (GAAP) used in the Hong Kong Joint Venture’s accounting policies when compared to US GAAP.

The following represents summarized financial information derived from the audited financial statements of the Hong Kong Joint Venture as of March 31, 2012 and 2011.

	March 31,
	2012		2011
Current assets	$	14,753,305	$	14,127,686
Property and other assets		17,791,497		17,208,266
Total	$	32,544,802	$	31,335,952
Current liabilities	$	4,320,954	$	3,837,140
Non-current liabilities		6,014		24,116
Equity		28,217,834		27,474,696
Total	$	32,544,802	$	31,335,952

	For the Year Ended March 31,
	2012		2011
Net sales	$	22,160,107	$	24,231,557
Gross profit		5,011,795		6,444,936
Net income		1,259,210		3,339,499

During the years ended March 31, 2012 and 2011, the Company purchased $10,152,081 and $8,130,109, respectively, of finished product from the Hong Kong Joint Venture, which represents 96.2% and 85.6%, respectively, of the Company’s total finished product purchases for the years ended at March 31, 2012 and 2011. Amounts due the Hong Kong Joint Venture included in Accounts Payable totaled $449,430 and $453,480 at March 31, 2012 and 2011, respectively. Amounts due from the Hong Kong Joint Venture included in Accounts Receivable totaled $584,594 and $301,380 at March 31, 2012 and 2011, respectively.

The Company’s investment in the Hong Kong Joint Venture as recorded on the Company’s Consolidated Balance sheets has been adjusted by the intercompany profit of the Hong Kong Joint Venture in the Inventory of the Company.

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PROPERTY AND EQUIPMENT

12 Months Ended

Mar. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE B – PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided by using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.

The estimated useful lives for financial reporting purposes are as follows:

Leasehold improvements	-	Shorter of term of lease or useful life of asset
Machinery and equipment	-	5 to 10 years
Furniture and fixtures	-	5 to 15 years
Computer equipment	-	5 years

Property and equipment consist of the following:

	March 31,
	2012			2011
Leasehold improvements	$	166,772		$	166,772
Machinery and equipment		190,400			189,276
Furniture and fixtures		256,558			251,611
Computer equipment		245,944			242,003
		859,674			849,662
Less accumulated depreciation		(683,530	)		(646,222	)
	$	176,144		$	203,440

Depreciation and amortization expense totaled $41,522 and $61,025 for fiscal years ended March 31, 2012 and 2011, respectively.

XML

CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Mar. 31, 2011
ASSETS
Cash and cash equivalents	$ 3,186,274	$ 6,728,593
Accounts receivable:
Trade less allowance for doubtful accounts of approximately $75,000 at March 31, 2012 and 2011	229,027	276,463
Other receivables	68,230	69,666
Receivable from Hong Kong Joint Venture	584,594	301,380
Accounts, Notes, Loans and Financing Receivable, Net, Current	881,851	647,509
Amount due from factor	1,719,731	1,569,126
Inventories, net of allowance for obsolete inventory of $70,000 at March 31, 2012 and $100,000 at March 31, 2011	5,398,540	3,534,011
Prepaid expenses	599,876	519,356
TOTAL CURRENT ASSETS	11,786,272	12,998,595
DEFERRED TAX ASSET	2,394,801	2,002,561
INVESTMENT IN HONG KONG JOINT VENTURE	13,083,493	13,149,614
PROPERTY AND EQUIPMENT - NET	176,144	203,440
INTANGIBLE ASSET - NET	84,962	89,434
OTHER ASSETS	40,134	40,134
TOTAL ASSETS	27,565,806	28,483,778
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	673,524	794,014
Hong Kong Joint Venture accounts payable	449,430	453,480
Accrued liabilities:
Payroll and employee benefits	111,974	177,298
Commissions and other	58,837	33,700
TOTAL CURRENT LIABILITIES	1,293,765	1,458,492
Long-term obligation - other	25,000	25,000
COMMITMENTS AND CONTINGENCIES	0	0
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; 20,000,000 authorized and 2,336,354 shares outstanding at March 31, 2012 and 2,387,887 shares issued and outstanding at March 31, 2011.	23,364	23,879
Additional paid-in capital	12,885,756	13,135,198
Retained earnings	13,337,921	13,841,209
TOTAL SHAREHOLDERS' EQUITY	26,247,041	27,000,286
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 27,565,806	$ 28,483,778

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$ (503,288)	$ 817,781
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	41,522	61,025
Stock based compensation	25,939	0
Deferred income taxes	(392,240)	(125,405)
Earnings of the Hong Kong Joint Venture	(500,502)	(1,691,133)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and amounts due from factor	(384,947)	2,157,589
(Increase) in inventories	(1,864,529)	(94,105)
(Increase) in prepaid expenses	(80,520)	(168,165)
(Decrease) in accounts payable and accrued expenses	(164,728)	(1,004,757)
(Increase) in other assets	0	(19,998)
NET CASH (USED IN) OPERATING ACTIVITIES	(3,823,293)	(67,168)
INVESTING ACTIVITIES:
Proceeds from sale of assets held for investment	0	4,001,890
Cash distributions from Joint Venture	566,622	694,976
Purchase of equipment	(9,752)	(65,302)
Patent costs capitalized	0	(89,434)
NET CASH PROVIDED BY INVESTING ACTIVITIES	556,870	4,542,130
FINANCING ACTIVITIES:
Repurchase of common stock	(275,896)	0
NET CASH USED IN FINANCING ACTIVITIES	(275,896)	0
(DECREASE) INCREASE IN CASH	(3,542,319)	4,474,962
Cash at beginning of period	6,728,593	2,253,631
CASH AT END OF PERIOD	3,186,274	6,728,593
Supplemental information:
Interest paid	0	4,166
Income taxes recovered (paid)	$ 0	$ 0

XML

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Business Description and Accounting Policies [Text Block]

NOTE A – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: Universal Security Instruments, Inc.’s (“the Company”) primary business is the sale of smoke alarms and other safety products to retailers, wholesale distributors and to the electrical distribution trade which includes electrical and lighting distributors as well as manufactured housing companies. The Company imports all of its safety and other products from foreign manufacturers. The Company, as an importer, is subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We believe that our 50% ownership interest in the Hong Kong Joint Venture allows us to significantly influence the operations of the Hong Kong Joint Venture. As such, we account for our interest in the Hong Kong Joint Venture using the equity method of accounting. We have included our investment balance as a non-current asset and have included our share of the Hong Kong Joint Venture’s income in our consolidated statement of operations. The investment and earnings are adjusted to eliminate intercompany profits.

Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. At times, the Company maintains cash and investment balances in financial institutions, which may exceed federally insured limits. The Company has not experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents and investments. The carrying value of cash and cash equivalents approximates their fair value based on their short-term maturities at March 31, 2012 and 2011.

Revenue Recognition: The Company recognizes sales upon shipment of products, when title has passed to the buyer, net of applicable provisions for any discounts or allowances. We recognize revenue when the following criterion are met: evidence of an arrangement, fixed and determinable fee, delivery has taken place, and collectability is reasonably assured. Customers may not return, exchange or refuse acceptance of goods without our approval. We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Warranties: We generally provide warranties, on the safety products, from one to ten years to the non-commercial end user on all products sold. The manufacturers of our safety products provide us with a one-year warranty on all products we purchase for resale. Claims for warranty replacement of products beyond the one-year warranty period covered by the manufacturers have not been historically material and we do not record estimated warranty expense or a contingent liability for warranty claims.

Stock-Based Compensation: In October 2011, the stockholders approved the Company’s 2011 Non-Qualified Stock Option Plan authorizing the issuance of 120,000 options to purchase the Company’s common stock. At March 31, 2012, 97,000 options have been issued at an exercise price of $5.51.

We account for share-based payments using the fair value method. We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis based on the value of share awards that are expected to vest during the requisite service period on the grant date, which is revised if actual forfeitures differ materially from original expectations.

The expected term of stock options granted was based on the Company’s historical option exercise experience and post-vesting forfeiture experience using the historical expected term from the vesting date. The expected volatility of the options granted was determined using historical volatilities based on stock prices over a look-back period corresponding to the expected term. The risk-free interest rate was determined using the yield available for zero-coupon U.S. government issues with a remaining term equal to the expected term of the options. The forfeiture rate was determined using historical pre-vesting forfeiture rates since the inception of the plans. The company has never paid a dividend; and, as such, the dividend yield is zero.

Stock Repurchase Program: In October 2011, the Company announced a stock buyback program under which the Board authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. The program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors).

The following table sets forth information with respect to purchases by the Company of its common stock during the fiscal year ended March 31, 2012:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans Or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
November 2011		11,000	$	5.35		11,000		89,000
December 2011		10,039	$	5.08		10,039		78,961
January 2012		20,398	$	5.52		20,398		58,563
March 2012		10,096	$	5.42		10,096		48,467
Total		51,533	$	5.39		51,533		48,467

Research and Development: Research and development costs are charged to operations as incurred.

Accounts Receivable: The Company nets the factored accounts receivable with the corresponding advance from the Factor, with the net amount reflected in the consolidated balance sheet.

The Company sells trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis. Factoring charges recognized on sales of receivables are included in selling, general and administrative expenses in the consolidated statements of income and amounted to $56,943 and $57,161 for the years ended March 31, 2012 and 2011, respectively. The Agreement for the sale of accounts receivable provides for continuation of the program on a revolving basis until terminated by one of the parties to the Agreement.

Financing Receivables. In September 2010, the FASB issued, and the Company adopted, an Accounting Standards Update requiring enhanced disclosure of the credit quality of financing receivables, as defined therein, and the adequacy of allowances for credit losses. Management considers amounts due from the Company’s factor to be “financing receivables”. Trade accounts receivable, other receivables, and receivables from our Hong Kong Joint Venture are not considered to be financing receivables.

The Company sells the majority of its short-term receivables arising in the ordinary course of business to our factor. At the time a receivable is sold to our factor the credit risk associated with the credit worthiness of the debtor is assumed by the factor. The Company continues to bear any credit risk associated with delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the allowance account from one accounting period to the next are charged to operations in the period the change is determined. Amounts ultimately determined to be uncollectible are eliminated from the receivable accounts and from the allowance account in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no allowance for uncollectible financing receivables has been provided. At March 31, 2012, an allowance of $75,000 has been provided for uncollectible trade accounts receivable.

Shipping and Handling Fees and Costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are included in cost of goods sold. Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $356,171 and $308,278 in fiscal years 2012 and 2011, respectively.

 
Inventories: Inventories are stated at the lower of cost (first in/first out method) or market. Included as a component of finished goods inventory are additional non-material costs. These costs include overhead costs, freight, import duty and inspection fees of $571,219 and $398,397 at March 31, 2012 and 2011, respectively. Inventories are shown net of an allowance for inventory obsolescence of $70,000 and $100,000 as of March 31, 2012 and 2011, respectively.

The Company reviews inventory quarterly to identify slow moving products and valuation allowances are adjusted when deemed necessary.

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided, whenever it is more likely than not that a deferred tax asset will not be realized. The Company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expenses, See Note F, Income Taxes.

Recently Issued Accounting Pronouncements: Changes to accounting principles generally accepted in the United States of America (US. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updated (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASU’s. Recently issued ASU’s were evaluated and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

Foreign currency: The activity and accounts of the Hong Kong Joint Venture are denominated in Hong Kong dollars and are translated to US dollars in consolidation. The Company translates the accounts of the Hong Kong Joint Venture at the applicable exchange rate in effect at the year end date for balance sheet purposes and at the average exchange rate for the reporting period for statement of income purposes. Transaction gains and losses arising from transactions denominated in foreign currencies are included in the results of operations. The Company currently does not maintain cash in foreign banks to support its operations in Hong Kong.

Net Income per Share: The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the period. All common share equivalents are comprised of stock options. Diluted income per common share for the year ended March 31, 2012 excludes all stock options, as their effect is antidilutive. As a result, the weighted average number of common shares outstanding is identical for the year ended March 31, 2012 for both basic and diluted shares.

	March 31,
	2012		2011
Weighted average number of common shares outstanding for basic EPS		2,374,952		2,387,887
Shares issued upon assumed exercise of outstanding stock options		-		7,879
Weighted average number of common and common equivalent shares outstanding for diluted EPS		2,374,952		2,395,766

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Mar. 31, 2012	Mar. 31, 2011
Allowance for doubtful accounts (in dollars)	$ 75,000	$ 75,000
Net of allowance for obsolete inventory (in dollars)	$ 70,000	$ 100,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	0	2,387,887
Common stock, shares outstanding	2,336,354	2,387,887

XML

RETIREMENT PLAN

12 Months Ended

Mar. 31, 2012

Postemployment Benefits [Abstract]

Postemployment Benefits Disclosure [Text Block]

NOTE K – RETIREMENT PLAN

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code. All full-time employees who have completed 12 months of service are eligible to participate. Employees are permitted to contribute up to the amounts prescribed by law. The Company may provide contributions to the plan consisting of a matching amount equal to a percentage of the employee’s contribution, not to exceed four percent (4%). Employer contributions were $62,769 and $55,029 for the years ended March 31, 2012 and 2011, respectively.

XML

DOCUMENT AND ENTITY INFORMATION (USD $)	12 Months Ended
	Mar. 31, 2012	Jun. 15, 2012	Sep. 30, 2011
Entity Registrant Name	UNIVERSAL SECURITY INSTRUMENTS INC
Entity Central Index Key	0000102109
Current Fiscal Year End Date	--03-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	uuu
Entity Common Stock, Shares Outstanding		2,336,354
Document Type	10-K
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012
Entity Well-Known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 11,183,350

XML

INTANGIBLE ASSETS

12 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

NOTE M – INTANGIBLE ASSETS

Intangible assets consist of legal expenses of $89,434 incurred in obtaining and perfecting patents on newly developed detector technology and are capitalized for financial statement purposes. Upon issuance, patents are amortized over twenty years on a straight-line basis.

The estimated useful lives for financial reporting purposes are as follows:

Intangible patent costs - 20 years

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Net sales	$ 13,304,602	$ 13,249,604
Cost of goods sold - acquired from Joint Venture	9,420,225	7,024,044
Cost of goods sold - other	373,179	2,463,815
GROSS PROFIT	3,511,198	3,761,745
Research and development expense	570,952	615,639
Selling, general and administrative expense	4,389,818	4,375,241
Operating loss	(1,449,572)	(1,229,135)
Other income (expense):
Interest expense	0	(4,166)
Investment and interest income	56,182	213,086
Nonoperating Income (Expense)	56,182	208,920
LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE	(1,393,390)	(1,020,215)
Equity in earnings of Hong Kong Joint Venture	500,502	1,691,133
(Loss) income from operations before income taxes	(892,888)	670,918
Income tax benefit	(389,600)	(146,863)
NET (LOSS) INCOME	$ (503,288)	$ 817,781
(Loss) income per share:
Basic (in dollars per share)	$ (0.21)	$ 0.34
Diluted (in dollars per share)	$ (0.21)	$ 0.34
Shares used in computing net income per share:
Basic (in shares)	2,374,952	2,387,887
Diluted (in shares)	2,374,952	2,395,766

XML

INCOME TAXES

12 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE F – INCOME TAXES

The Company files its income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Deferred income tax assets and liabilities are computed and recognized for those differences that have future tax consequences and will result in net taxable or deductible amounts in future periods. Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred taxes. The deferred tax liabilities and assets for the Company result primarily from tax credit carryforwards, reserves and accrued liabilities

For the fiscal year ended March 31, 2012, the Company has an accumulated net operating loss carryover of approximately $1,699,398 that the Company may carry-forward to offset future taxable income. The Company generated no foreign tax credits for the period. At March 31, 2012, the Company has $1,522,886 of foreign tax and $82,778 of research and development credit carry-forward available to offset future federal income taxes.

For the fiscal year ended March 31, 2011, the Company has an accumulated net operating loss of approximately $812,651 that the Company may carryforward to offset future taxable income. The Company generated $113,136 of foreign tax credits for the period. At March 31, 2011, the Company has $1,522,886 of foreign tax credit carryforward and $48,186 of research and development credit available to offset future federal income taxes.

The components of income tax expense (benefit) from continuing operations for the Company are as follows:

	2012			2011
Current benefit
U.S. Federal	$	-		$	(21,459	)
U.S. State		-			-
		-			(21,459	)
Deferred benefit		(389,600	)		(125,404	)
Total income tax benefit	$	(389,600	)	$	(146,863	)

	March 31,
	2012		2011
Deferred tax assets:
Financial statement accruals and allowances	$	68,765	$	54,340
Inventory uniform capitalization		83,098		72,412
Net operating loss carryforward		637,274		304,737
Foreign tax credit carryforward		1,522,886		1,522,886
Research and development tax credit carryforward		82,778		48,186
Net deferred tax asset	$	2,394,801	$	2,002,561

The reconciliation between the statutory federal income tax provision and the actual effective tax provision for continuing operations is as follows:

	Years ended March 31,
	2012			2011
Federal tax (benefit) expense at statutory rate (34%) before loss carry-forward	$	(278,493	)	$	225,374
Non-repatriated earnings of Hong Kong Joint Venture		(76,230	)		(338,693	)
Foreign tax credit		-			(74,670	)
Research and development credit		(41,657	)		(17,361	)
State income tax expense, net of federal tax effect		-			(5,277	)
Reduction in uncertain tax position liability		-			(21,459	)
Permanent differences		27,542			14,955
True-up adjustments		(20,762	)		70,268
Income tax benefit	$	(389,600	)	$	(146,863	)

The Company adopted new income tax guidance regarding uncertain tax positions on April 1, 2007. As a result of the implementation, the Company recognized an $86,000 liability for unrecognized tax benefits, which was accounted for as a reduction of the April 1, 2007 retained earnings balance. The total amount of unrecognized tax attributes as of the date of the adoption was approximately $86,000 and includes income taxes, tax penalties and imputed interest. Interest and penalties related to adjustments to income taxes as filed, have not been significant. The Company includes any such interest and penalties in its tax provision. During the fiscal year ended March 31, 2011 and 2010, the amount of the unrecognized tax attributes were reduced by $21,459 and $39,541, respectively, to $25,000, including deemed interest and penalties. That amount, if ultimately recognized, would reduce the Company’s annual effective tax rate. The Company has concluded that none of this amount will be paid within the next twelve months.

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LEASES

12 Months Ended

Mar. 31, 2012

Leases, Operating [Abstract]

Operating Leases of Lessor Disclosure [Text Block]

NOTE E - LEASES

During January 2009, the Company entered into an operating lease for its office and warehouse location in Owings Mills, Maryland which expires in March 2019. This lease is subject to increasing rentals at 3% per year. In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse. The Company has the right to terminate the lease after five years for a one-time payment of $42,000. In February 2004, the Company entered into an operating lease for 2,600 square foot office in Naperville, Illinois. During fiscal 2012, the lease was expanded to approximately 3,400 square feet and the lease was extended to February 2015 with rentals increasing at 3% per year.

Each of the operating leases for real estate has renewal options with terms and conditions similar to the original lease. Rent expense, including common area maintenance, totaled $176,575 and $171,080 for the years ended March 31, 2012 and 2011, respectively.

	2013		2014		2015		2016
Future minimum lease payments are as follows:		192,534		204,558		53,781		2,997

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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Mar. 31, 2012

Valuation and Qualifying Accounts [Abstract]

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

SCHEDULE II

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED MARCH 31, 2012 AND 2011

	Balance at beginning of year		Charged to cost and expenses		Deductions		Balance at end of year
Year ended March 31, 2012
Allowance for doubtful accounts	$	75,000	$	0	$	0	$	75,000
Year ended March 31, 2011
Allowance for doubtful accounts	$	87,851	$	0	$	12,851	$	75,000
Year ended March 31, 2012
Allowance for inventory reserve		100,000	$	0	$	30,000	$	70,000
Year ended March 31, 2011
Allowance for inventory reserve	$	100,000	$	0	$	0	$	100,000

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MAJOR CUSTOMERS

12 Months Ended

Mar. 31, 2012

Major Customers [Abstract]

Major Customers [Text Block]

NOTE I - MAJOR CUSTOMERS

The Company is primarily a distributor of safety products for use in home and business under both its trade names and private labels for other companies. As described in Note C, the Company purchased a majority of its products from its 50% owned Hong Kong Joint Venture.

For the fiscal year ended March 31, 2012, the Company had one customer, Facilities Maintenance, that represented 12.3% of the Company’s product sales.

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SHAREHOLDERS' EQUITY

12 Months Ended

Mar. 31, 2012

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE G - SHAREHOLDERS’ EQUITY

Stock Repurchase Program – The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the fiscal year ended March 31, 2012:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans Or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
November 2011		11,000	$	5.35		11,000		89,000
December 2011		10,039	$	5.08		10,039		78,961
January 2012		20,398	$	5.52		20,398		58,563
March 2012		10,096	$	5.42		10,096		48,467
Total		51,533	$	5.39		51,533		48,467

In October 2011, the Company announced a stock buyback program and authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. The program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors).

Stock Options – Under the terms of the Company’s 2011 Non-Qualified Stock Option Plan, 120,000 shares of common stock were reserved for the granting of stock options, of which 97,000 options have been issued as of March 31, 2012.

Under the terms of the Company’s now expired 1978 Non-Qualified Stock Option Plan, as amended, 1,170,369 shares of common stock were reserved for the granting of stock options, of which 1,149,638 options had been issued as of March 31, 2009. There are no options outstanding under the 1978 Non-Qualified Stock Option Plan.

In March 2009, 25,000 options were issued at $3.25 for restricted shares of the Company’s common stock. These options were not issued under the now expired 1978 Non-Qualified Stock Option Plan and became fully vested after one year with a right to exercise until March 2014.

The following tables summarize the status of exercisable stock options at March 31, 2012 and option transactions for the years then ended:

Status as of March 31, 2012	Number of Shares
Presently exercisable		25,000
Outstanding options by grant
Number of holders – grant 1		1
Average exercise price per share	$	3.25
Expiration date:		March 2014
Number of holders – grant 2		19
Average exercise price per share	$	5.51
Expiration date:		December 2013

Transactions for the Year Ended March 31, 2012:	Number of Shares		Weighted Average Exercise Price
Outstanding at April 1, 2011		25,000		3.25
Granted		97,000		5.51
Outstanding at March 31, 2012		122,000		5.05

The following table summarizes information about stock options outstanding at March 31, 2011:

		Options Outstanding						Options Exercisable
Range of Exercise Price		Number of Shares		Weighted Average Exercise Price		Weighted Average Contract Life (Yrs)		Number of Shares		Weighted Average Exercise Price
$	3.25		25,000		3.25		5.00		25,000		3.25
$	5.51		97,000		5.51		2.00		0		5.51

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions; no annual dividends, expected volatility of 57.73%, risk-free interest rate of 0.3% and expected lives of two years used for options granted in fiscal 2012. There were no options granted in fiscal 2011. The fair value of options granted in fiscal 2012 approximates $170,000. Fifty percent of the options vest one year after issuance, with the remaining fifty percent vesting twenty-three months after issuance.

As of March 31, 2012, the unrecognized compensation cost related to share-based compensation arrangements that we expect to vest is $144,519. The aggregate intrinsic value of currently exercisable options was $53,250 at March 31, 2012.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE H - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel, that these matters will not have a material adverse effect on the Company’s financial statements.

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QUARTERLY FINANCIAL DATA (UNAUDITED)

12 Months Ended

Mar. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Text Block]

NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly Results of Operations (Unaudited):

The unaudited quarterly results of operations for fiscal years 2012 and 2011 are summarized as follows:

	Quarter Ended
	June 30,		September 30,			December 31,		March 31,
2012
Net sales	$	3,201,302	$	3,307,514		$	3,186,197	$	3,609,589
Gross profit		872,938		1,000,659			818,527		819,074
Net income (loss)		581		(309,941	)		67,226		(261,154	)
Net income (loss) per share:
Basic		0.00		(0.13	)		0.03		(0.11	)
Diluted		0.00		(0.13	)		0.03		(0.11	)
2011
Net sales	$	3,681,421	$	3,714,378		$	2,475,511	$	3,378,294
Gross profit		1,111,242		1,064,144			751,580		834,779
Net income		281,867		268,376			19,545		247,993
Net income per share:
Basic		0.12		0.11			0.01		0.10
Diluted		0.12		0.11			0.01		0.10

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at Mar. 31, 2010	$ 23,879	$ 13,135,198	$ 13,023,428	$ 26,182,505
Balance (in shares) at Mar. 31, 2010	2,387,887
Net (loss) income	0	0	817,781	817,781
Balance at Mar. 31, 2011	23,879	13,135,198	13,841,209	27,000,286
Balance (in shares) at Mar. 31, 2011	2,387,887
Stock based compensation	0	25,939	0	25,939
Net (loss) income	0	0	(503,288)	(503,288)
Repurchase of common stock	(515)	(275,381)	0	(275,896)
Repurchase of common stock (in shares)	(51,533)
Balance at Mar. 31, 2012	$ 23,364	$ 12,885,756	$ 13,337,921	$ 26,247,041
Balance (in shares) at Mar. 31, 2012	2,336,354

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AMOUNTS DUE FROM FACTOR

12 Months Ended

Mar. 31, 2012

Amount Due From Factor [Abstract]

Amounts Due From Factor [Text Block]

NOTE D - AMOUNTS DUE FROM FACTOR

The Company sells certain of its trade receivables on a pre-approved, non-recourse basis to a Factor. Since these are sold on a non-recourse basis, the factored trade receivables and related repayment obligations are not separately recorded in the Company’s consolidated balance sheets. The Agreement provides for financing of up to a maximum of $1,000,000 with the amount available at any one time based on cash on deposit, 90% of uncollected non-recourse receivables sold to the factor, and 50% of qualifying inventory. Financing of approximately $1,000,000 is available at March 31, 2012. Any outstanding amounts due to the factor are payable upon demand and bear interest at the prime rate of interest charged by the factor, which is 3.25% at March 31, 2012. Any amount due to the factor is also secured by the Company’s inventory. There were no borrowings outstanding under this agreement at March 31, 2012.

Under this Factoring Agreement, the Company sold receivables of approximately $9,979,020 and $10,360,042 during the years ended March 31, 2012 and 2011, respectively. Gains and losses recognized on the sale of factored receivables include the fair value of the limited recourse obligation. The uncollected balance of non-recourse receivables held by the factor amounted to $1,719,731 and $1,569,126 at March 31, 2012 and 2011. The amount of the uncollected balance of non-recourse receivables borrowed by the Company as of March 31, 2012 and 2011 is $0 and $0, respectively. Collected cash maintained on deposit with the factor earns interest at the factor’s prime rate of interest less three percentage points (effective rate of 0.25%) at March 31, 2012 and 2011.